EY’s annual Financial Reporting Developments series | Mining Sector

Rosa:

Hello everyone and welcome. My name is Rosa and I will be your EY Canada host for today's webcast. Before turning things over to our speakers, I'd like to quickly review some features available to you through this WebEx platform. First, please take a look at the bottom of your screen — you can see three dots within which you’ll find additional controls icons that allow easy access to your speaker controls to ensure you can hear our presenters clearly. You'll also find a red “X” icon that allows you to leave the webcast at any time without disrupting the presentation or any other participants. Next, at the bottom right-hand corner of your screen, you will find the participants and Q&A icons. You can click on the participants’ icon to see the names of our presenters, and you can click the Q&A icon to ask questions. We encourage you to ask questions throughout the webcast, and we will be answering as many questions as possible at the end of the presentation. However, please be sure to direct any questions or messages to all panellists, to ensure all questions are captured. You can direct any technical issues you may be experiencing to me, the host. Also, we will be asking polling questions today. When the questions are launched, it will automatically appear in the right-hand window where you can view the names of today's presenters and access the Q&A. Our speakers would love your input, so I encourage you to take a second to respond to the polling questions. Finally, the session is being recorded and it will be shared with you after the event. And with that, I'll pass it over to Dean to start today's session.

Dean Braunsteiner:

Hey Rosa, we certainly appreciate the explanation on how the technology will work and glad you're here to support us because if it was up to me, I'm not sure we'd get it to work well. Good afternoon. It's a pleasure to be here with you today. My name is Dean Braunsteiner and I lead EY's Canadian Mining Assurance practice. I would like to welcome you to our Mining Financial Reporting Development series. It's hard to believe a full year has passed since our last session. It certainly has been an eventful year. We've brought together several experts who will discuss a broad range of topics over the next 75 minutes or so, with time for questions at the end of the presentations. I'll start by thanking our presenters for their time today and would like to especially thank Ritika and Alex from the Ontario Securities Commission for joining us. It's always nice to get a perspective from the regulator and get a sense of what they're focused on.

We've outlined our agenda. We'll start that with Brenna, and I will provide an industry snapshot as well as insights from EY's recent Global Survey of Mining Risks and Opportunities. David and Ben-Ari will cover how the climate agenda is impacting geopolitical risks. Janice Rod will cover a discussion on ESG and where we're headed. As I mentioned, Ritika and Alex will provide the regulator's perspective on a number of topics. And last but certainly not least, we'll have Eric Simmons give an update on comment letter trends and IFRS developments. It’s certainly a packed agenda and so we'll get right into it.

From an industry perspective, we always like to start to look at the global economy and see how that's impacting the mining industry. In the next slide, you can see clearly that there's been a rebound after 18 months of COVID-19 restrictions and various lockdowns. As these have eased, we certainly seen a pop in economic activity in the second and third quarter of 2021. There's an expectation that growth will normalize around 4% globally, but no surprise to see China leading the way. We've heard as well, central banks will be keeping an eye on inflation and as we expect, interest rates will hike in 2022, probably late and then early into 2023. I guess the big unknown at the moment is the continued impact of the next COVID-19 variant that we're hearing about. That's creating issues and certainly has the ability to impact short-term trade and supply chain. This is likely going to translate into further restrictions. We're already hearing of that in some parts of Europe and slower economic growth, and it's particularly impacting countries that have low vaccination rates. That's probably the big unknown that'll play a factor into how economies recover. The result of that is just more stress on global supply chain, continued pressure on prices in general, including the price of commodities.

On the next slide, we summarized what's happened to commodity prices over the last year. And you can see from here, the largest increase has been in the price of US steel, which has been predominantly as a result of higher demand, lower supply and increasing prices or iron ore. With the focus of government infrastructure programs, we certainly expect to see upward pressure on iron ore prices and steel prices, going forward. The other interesting fact, but probably not surprising on this slide is, just the increase in price and demand for thermal coal. The demand is strong since it continues to be a source of generating power in places like China and India. This fact is really putting pressure on decarbonization efforts because clearly developing countries still require cheap energy to drive growth. I know this was debated at length during COP26, but of course no resolution. While the demand continues to be strong, a number of public companies are now looking to exit their coal businesses. I suspect a number of these assets are eventually going to be owned by private investors because developing countries still need this sort of inexpensive source of energy. However, there's less and less appetite for public companies to own coal assets. There could be an inflection point though. If prices continue to increase, green energy may become a better alternative, and that's certainly why governments across the world are looking to increase carbon taxes to try to level the playing field on the price of energy.

As developed nations look to accelerate their decarbonization strategies, this will continue to put upward pressure on bulk commodities, such as copper and nickel, even though those prices have come down from record highs during the year. As the supply has continued to improve, you'll see that electrification will continue to put a significant strain on supplies, and as a result, on pricing.

On the next slide, we just wanted to highlight what the outlook was for copper. While the price peaked earlier this year, demand is expected to exceed supply by 2025, which isn't that far out, and the real pressure is coming from the use of copper in electric vehicles. Just to give a perspective, an electric bus will use just under 500 kilograms of copper, and for each electric vehicle, it's about 75 kilograms. By 2025, the analysts are predicting that global copper inventories will start to decline. As a result, you're going to see long-term prices increasing. At the moment, the expected forecast is around $9,000 per ton, post-2025 or about $4.50 cents a pound, which is about kind of the current pricing today. If I were to show you the same chart for nickel, cobalt and lithium, the same supply shortages are predicted, and as a result, long-term pricing is going up in those commodities as well. The general sentiment is that there just aren't enough mines in the pipeline to meet the increase in demand. So, stay tuned.

On the next slide, we’ll have a look at gold prices, which is important from a Canadian perspective. Gold prices have been relatively stable over the last year. However, with renewed worries of inflation, it'll be interesting to see where prices are headed over the next 12 to 18 months. You can see we're still looking at estimated prices around $1,800 dollars in the short- to medium-term, and then analyst consensus on the long-term pricing is around $1,675 per ounce. Hence, not much has changed from about a year ago. We did do another survey and noted that large gold miners are still using around $1,200 per ounce in their reserve reporting. When it comes to long-term pricing versus consensus prices around $1,675. It'll be interesting to see what companies use in the current reserve report season and whether they're going to increase prices, because as you know, an increase in price will lead to reduction in cut-off grades and could introduce more reserves. That's one thing to look out for as we move into Q1 of 2022 and companies start to report.

To wrap up on other industry highlights, we can see on the next slide that the industry certainly has heard the demand by shareholders on better returns through dividends and a return of capital. Mining companies have certainly responded with minimum dividend policies, share buybacks and a return of capital. With improved profitability over the last year, we've seen a significant increase in returns. As you can see from here, BHP paid just under $8 billion in 2021, which is quite a dramatic increase over the last number of years. The last item, just to mention from an industry update, is just the continued mergers and acquisitions. This is certainly a clear decision by companies to diversify a risk, and we're starting to see, in particular Canadian assets and companies, becoming a lot more in demand. You've seen the recent transactions in Canada with the Agnico Eagle and Kirkland Lake merger, as well as Newcrest's proposed acquisition of Pretium. I think this trend is likely going to continue. Canada is a safe jurisdiction. It's become attractive and analysts are talking about more deals involving Canadian companies, and especially those that either consist of a single asset in production or assets that are near-term production. This is a clear sign that global companies are looking to Canada for geographic diversification. I'll leave it there with the industry update and just ask Brenna to provide a bit more of a perspective on EY's Global Mining Risk and Opportunity survey.

Brenna Daloise:

Thank you very much, Dean. What I have here, and we will quickly go to the next slide in a minute, is a debrief of the results of the 14^th Annual Mining and Metals Business Risks survey. This survey is a global survey and it's conducted between June and September every year. These are the results as they have landed this year, and it really gives us an industry snapshot. The majority of the respondents would be from the C-suite on what are the areas of focus, concern, and also the upside. What we have here is the ranking as they landed, with the number one spot being environmental and social. You're going to see a lot of ESG discussion from our presenters today, so it makes sense that that's where we landed with the number one spot. 25% of respondents indicated this is the number one risk for them. And then looking at the first three risks, decarbonization, licensed to operate as well, this is indicative of where the industry is going, and the sustainability aspect of that. I think people had thought maybe the last 18 months of the pandemic, we would have worked our way backwards on these, but glad to see that those are still in the forefront. A lot of the respondents indicated that not only are these areas of risk for them, but there's a lot of upside potential here, and so we'll get into that a little bit here. One of the other key themes from the survey results areas such as geopolitics, uncertain demand and the workforce, we're seeing a lot of external factors impacting where those landed in our survey. Interestingly, license to operate held the number one spot for three years in a row. It is still number three so it's still a big focus. I just think right now it's a baseline to just be in the game, but the environment is really what a lot of our C-suite has been focused on. We have two new entrants into the market. One is uncertain demand, and Dean alluded to the price and commodity volatility that we're seeing, which is where that would sit. Two is new business models and we're seeing a lot of strategic alliances, mergers and acquisitions, and vertical integration that would explain that. Then a bit surprisingly, the number 10 spot went to productivity and costs, and that was typically a number 3 for the last three years in a row. To see it go in the era of a pandemic, when we know costs are rising exponentially, to the number 10 spot was interesting, and we'll get into that. Just quickly, before we move on to the next slide, we're actually going to put up a quick polling question. We're going to leave it open, I just want to get your views.

On which of these top 10 risks would be the number 1 risk for you going into 2022? Then we'll debrief a little bit more on the survey and we'll come back to this at the end. On your right-hand side, you should see the answer, which one of these is your number 1? Please pick one and then hit the submit button and we will move on.

Perfect. Here on this slide, just wanted to touch on a couple points. The respondents to the survey, they're obviously balancing a lot of competing measures and a lot of external factors here. We see in the capital markets, investors saying 67% of the time, that they are looking at insights from companies’ task force on climate-related financial disclosures, and that places significant, or more than significant role in an investment decision. We see ESG increasingly being a big factor in investment decisions, moving to 95% of investment decisions being based on some form of ESG measure by 2035. We see pressures from the regulators on mining companies. So, the EU is aiming for carbon neutrality by 2050, and China by 2060. We see the EU has moved to impose Carbon taxes on imported products into the EU by 2026. Other countries such as US, Canada and Japan are working on some sort of similar mechanism, whereby if the home country of export does not tax carbon, the import country will. On our bottom right-hand corner, we see communities and traditional owners, especially in Canada, are always looking for more say in areas that impact them — that's the stakeholders that need to be balanced. And I think from a government's perspective, the last measure we look at is the $30 trillion that was spent by governments this year.

During the pandemic, respondents in the survey said they were concerned about rising taxes and royalties and how that would impact their operations, and 68% of respondents said they had a significant decision on investment that was being delayed until they understood what governments were doing to recoup that measure.

We will delve into ESG in lot more detail today, so I won't spend a lot of time on this, other than to say, capital markets and societal expectations on mining companies, in general, are broadening. As a result, there are great opportunities out there for mining companies. You will see the respondents said local community impact was their number one area of focus going into 2022, it is where they want to spend a lot of time. Water management was also another big area and water management in the area of reclamation and closed mines. We can see in the next five years, there's 550 mines that are set to go into closure, as well as the top mining companies estimating they’ll be spending about 40 billion on reclamation and or water management over the next couple of decades. As such, there's a big area of focus here from our respondents.

Decarbonization is up from fourth place. That was part of the green agenda last year but as we've talked about already, in COP26, there has been a lot of discussion on decarbonization and what that will look like. Dean alluded to investors moving away from thermal coal and the impact that will have.

When we did a survey of where the respondents were in their carbon emissions landscape, going into the next couple of years, 20% interestingly said they had not set goals yet for Scope 1 and Scope 2 net zero emissions target, which is a significant number; but on the flip side, 40% had already set Scope 1 and Scope 2 emissions for net zero and were aiming for 2030 to 2040 to reach that. 50% of the respondents were looking to be net zero Scope 3 emissions by 2040 to 2050. As such, they’re moving in a positive direction.

Our next slide talks a little bit about license to operate. This was the Top 3 spot where for the last three years, it's still in the top list and it's what investors are focused on. It's also a big driver in attracting talent. Your workforce has an expectation that license to operate is being adhered to and held to a high standard. And we just need to look to the tailings dam failures that we see in the news to see how investors’ confidence is eroded when license to operate is not maintained. Next is uncertain demand — last year, this was referred to as volatility, more in the focus of pricing volatility. But what we have now is uncertainty associated with customer demands and substitution threats, therefore it makes sense that it's uncertainty and demand in general. We also have changing technologies putting pressure on demand curves and the ability to predict, with any assurance, the right mix of commodities. With our respondents to the survey, we're looking at scenario planning, medium- and short-term tools to help predict the best path forward. We're also seeing industry associations and sustainable products coming out to help with demand such as the copper associations’ Copper Mark certification.

Our last slide here shows that productivity and rising costs was the number 10 risk and it's still very important. It is the risk being focused on, especially coming out of the pandemic, as everyone's costs increased through all of that. Higher commodity prices were tempting for miners to focus on production at all costs, but there’s caution there because of commodity prices returning back to normal levels. We'll see a lot of overextended mining companies. Our survey respondents here were focused on creating strategic joint ventures, M&A-type transactions or switching to low-cost renewables.

That's a quick summary of our survey, and I would just like to see the polling results come up just so we can see where this landed with everyone here. For majority of people, environment and social workforce is a big one, yet the great resignation is upon us. Here’s a nice segue into our next set, which is geopolitics and decarbonization. Thank you for that, and I would like to turn it over to David and Ben-Ari of EY.

David Kirsch:

Thanks for that overview, Brenna. My name is David Kirsch, I'm a managing director in the Energy and Resources sector in EY, and I'm also aligned with the Geostrategic Business Group. And I'm joined today with Ben-Ari Boukai, who is an associate director, also in the Geostrategic Business Group. We wanted to go through some of those geopolitical risks that are affecting the mining industry. We wanted to talk a little bit about how these are impacting those top three risks that Brenna outlined, which is ESG, decarbonization and your license to operate. The big headline of course is COP26, and if we want to be cynical about COP26, that it was a failure. They came in with the mandate to get more aggressive action on carbon restrictions and commitments for abatement, and instead they walked away basically with an agreement to keep the process going.

However, I think that overlooks a couple key trends. First of all, there is an overwhelming consensus around the world's major economies that the decarbonization of the energy sector, in particular, needs to happen. This is a chart basically of the G20, and you can see that the only country that hasn't signed up yet to a formal commitment is Mexico. Had we shown this even just a year ago, we would have had multiple colours on this graph, two years ago in the same type of story. The question now is going to turn not to, have you agreed to do something, but what is the quality of those agreements that you've committed to? And we are seeing a pretty wide divergence there. We're seeing a lot of different activity there that's going to be pretty critical here. Probably the leader in this regard is the EU and its Fit for 55 strategy is a more ambitious strategy on climate change adaptation than probably any other economic area out there. The important element of it too, to bear in mind, is that some of the EU's proposals for its carbon regime have extra-territorial elements through its carbon border, its border adjustment mechanism. It basically is going to force many other exporting enclaves to decarbonize in order to continue to compete in the common market. China is also really a key factor here, as you can see, it's the largest current greenhouse gas emitter. Its carbon neutrality pledge has been criticized for not going far enough, but it does raise the bar for other emerging markets. They have come out and said that this is a goal that needs to be addressed, and that simply being an emerging market doesn't give you that license to pollute, if you will. Furthermore too, while China was cautious at the international level, what it's doing domestically in terms of its energy reform, especially in response to the energy crisis that it had, is going to have a massive impact on the coal mining sector, given that it is now subjecting those long-term coal contracts to daily or monthly price of volatility. It's going to have a really significant impact, even though at the international level, China's not yet willing to commit to more ambitious pledges. Finally, the US is tightening climate change regulations, and it is trying to seek to lead in green tech innovation. One of the things that we want to highlight here is that there are a lot of challenges coming, but there are also a lot of opportunities. It's not just that the energy transition has a very strong mineral foundation to it, but it is also that as governments are starting to intervene in their own supply chains and create alternatives, especially to that dominated by China, there are going to be financing and programs available to help build up alternative supply chains, to try to do business differently, et cetera.

We want to take a really quick look at where governments are addressing this problem. This slide is a really broad-brush overview to allow us to talk about the G20 as a whole, and obviously, with any type of government programs, the devil is in the details — some of the real fine points of various different programs, especially infrastructure spending is going to be critically important. We want to look at two large buckets that really try to address this decarbonization challenge that governments have signed up to. The first is carbon pricing, and we can see depending on how we count, we can say over half of the G20 markets have carbon pricing initiatives in place. Most of that is coming out of the EU, of course, but that also includes China. And I think it also includes India's nascent carbon trading market, but that one might be in the proposed. The point here is that carbon pricing is becoming slowly the preferred method of trying to encourage the private sector to go through greenhouse gas abatement type of issues. And what we'll start seeing is a requirement for investments moving forward to align with those national goals towards ESG. At the same time, though, in the recovery programs from the same G20 countries, there is a significant element that's targeted towards energy financing, but less than half of this has been specifically targeted towards renewables. There's a little bit of a bifurcated approach coming from governments that, on the one hand, they want to encourage greater decarbonization; but on the other hand, as they're trying to build out infrastructure, they're much more technology-agnostic than they are in terms of where they are with the carbon financing, for example. Some elements to look for here and where you're likely to see policy volatility and some opportunities for surprises is that the one area that governments have not been addressing across the board as holistically as they have, say with energy financing to build out new production sources, is how do you harden the current infrastructure? Especially given worsening weather patterns or extreme weather events, the likelihood that those will continue over the short term, and that as we get additional extreme weather events that will add to the social pressure to do more on climate change. Secondly, the policy and regulatory shifts that are designed are inconsistent across borders. It's not a one-size-fits-all, but each country following its own path. Although the agreement at Glasgow to start coming up with a common standard on carbon trading and carbon pricing should be impactful in terms of accelerating the decarbonization agenda. Finally, there are going to be geopolitical dimensions, including renewed US-China relations, especially around the control of those mineral paths towards new energy. And with that, let me hand it off to Ben-Ari to go into a little bit greater detail on that last point.

Ben-Ari Boukai:

Thanks very much, Dave. Good to be with everybody. As Dean covered earlier, the accelerating energy transition is driving a substantial increase in demand for so-called green or critical minerals. There's a risk of a supply shortfall as well, and this will be exacerbated by the fact that research and production are concentrated in just a few geographies. For the five resources shown here, you can look at them and the top three producers account for anywhere between 49% and nearly 90% of production. While we realize concentration is nothing new for this sector, the geographies that will play a critical role in powering the green transition will need to be understood. If we look at exporters of green minerals, we anticipate they will seek to capitalize on this market power to maximize the financial and developmental benefits for their countries. We anticipate a new wave of resource nationalism for green minerals, and that's driven by five factors. In some countries, a desire to maximize a financial benefit for the commodity price upswing will drive government preventionism in order to help alleviate socioeconomic pressures, such as income, inequality and poverty. We can look at as an example at Peru’s government, which is aiming to raise taxes on mining companies on social programs.

Second, the need to plug fiscal gaps in the aftermath of the pandemic-induced economic contraction will reinforce this further. A prime example there is Chile’s plan to impose mining royalty on copper and lithium. There are some green mineral-rich countries that will also seek to move up the value chain of the energy transition by limiting the export for all materials mandating some value-added in the country. And for some governments, they may go even further to assert state control over critical minerals, production and exports. Many of you may have seen that China recently created a new state-owned enterprise that will control about 70% domestic rare earth production. Lastly, the environmental concerns around critical minerals will continue to impact experts' decision-making as well.

On the other side of the equation, importers of green minerals will try to secure resilient supply chains. This will be increasingly important as a geo-strategic imperative, or the three great powers. Because China invested so heavily in the last downturn, it's now reaping the benefit of that investment, and we anticipate that its position is likely to grow stronger in 2022, as the country works through its supplies five-year plan target of development. Other markets, including the US and EU, will try to catch up providing a potentially sizeable opportunity for the sector. Just to reiterate, the geopolitical competition could position the sector favourably as some consuming countries look to place investments in alternative locations as an alternate to China.

The sector will need to remain aware of at least two trends that will lead to greater stakeholder pressures as all of this takes place. First, the environmental impact of extracting critical minerals, and second, as we just reviewed some of the geographies of which commodities are concentrated are fragile environments, adding political instability, conflict, human rights abuse concerns, and our contention would be that mining companies really need to consider how to manage their social footprint in parallel to capturing this growth opportunity.

Thus, corporate climate strategies will increasingly have the ability to both elevate and also damage a company's reputation. Investors, consumers and employees, are all pressuring companies to be more sustainable, and mining companies that do not act on these demands are increasingly at risk of losing customers, potentially employees, and facing higher power cost on capital. As my colleagues will cover a little bit later in the ESG discussion, there are certain reporting standards developing that will facilitate communicating around these issues, but it's important to recall the climate reputation is not just a downside risk. For the reputational risks, it's not just downside. We've seen effective stakeholder management that can help firms realize new value from sustainability policies. And to do so well, companies will need to understand how regulators and societal expectations will evolve across geographies. With that, let me transition to David to dive a little bit deeper.

David Kirsch:

I think the critical point is understanding what the government that you're operating in, or what the society that you're operating in, really wants. If we take a look at these three countries, just as an example, on the side, South Africa and Peru, very important mining sectors in either country, but they're facing very different challenges. In South Africa, there is a challenge to, especially wean the economy as a whole off of coal. And they're going through a very difficult transition right now, given the fact that even their traditional energy generation through coal has been insufficient leading to wide-scale systemic blackouts, et cetera. The economy is expected to receive billions in support to end its coal use. But there is a large question about how do you handle that transition and what comes next, and also what is going to be the continuing role of mining in the economy, given the heavy dependence, or the heavy draw of employment through the mining sector there as well.

In Peru, as Ben-Ari mentioned, the question is not so much about the sustainability of mining per se, but whether or not it's generating those returns and delivering on the development promises that the government, and ultimately society, is looking to see out of that sector. It’s critical to look at, when you're engaging in these countries, not only what is it that you can bring in the mining sector directly, but how does that fit into the wider developmental goals, and we'll say even the decarbonization goals of the country as a whole, and how can you align your own ESG strategy with theirs.

Complicating that factor is Belgium, although Belgium does get a lot of its minerals from other European sources — we just wanted to use it as illustrative of a European country as I mentioned before, with the European Carbon adjustment tax — you are now also going to be thinking about what does the ultimate customer of the commodity want as you're developing your own mining operations in third countries? It's much more than the fact that local stakeholder involvement has always been a part of mining operations, but adding in that perspective of the customer and the oversight, the social oversight, on the ESG lens I think is the new wrinkle that's greatly complicating mining investments moving forward.

If we go to the last slide that we have in this section, which is also trying to keep an eye on what happens in the adjacent sectors that ultimately drive demand for minerals and metals. The case that we're having that we're showing here is just on EVs, but it could be on any sector really. EVs are a little bit of a complicating factor because it impacts on so many different metals and minerals, both in terms of what you need for the EVs themselves, the motors, the batteries, the charging stations, et cetera, but also the knock-on impacts that it would have for metals, especially PGM and conventional internal combustion engines that EVs could displace. This graph, like a lot of them, shows what the potential for a global transition could be, but we need to bear in mind that the transition reflects global trends but happens on a very local level. Sometimes at the national level, in the United States and in Canada, for example, more at the state and the provincial level is also going to heavily influence the speed, the pace and the depth of the energy transition adoption of EVs, for example, or other types of technologies, and drive what is the addressable market going to be for commodities at the end, and kind of give you some certainty around that final demand. There are opportunities for cohesive regulation, and we would also look at this as there are opportunities for mining companies to become involved in terms of looking at the alignment of what policy goals and the impacts of regulations are going to be? What are the appropriate financial and tax incentives that could encourage those results and how can they align and help address or accelerate emissions targets and help set standards in operability norms, et cetera?

With that, I am going to hand it off to Janice, but first, we want to quickly pull up a poll. We just want to ask you what are the most important new actions your organization is taking or planning to take, to manage the growing interest and activism by a much wider range of stakeholders? We've got five choices here — what we would suggest is if you pick the one that is the newest emphasis for you or is the heavy emphasis for you, if there are more than one that you're doing. And option “E” is if you haven't really changed as much in the new year or in the past year or don't plan to change much in the new year, please select “E”. I’ll give you a little bit to debrief that out, and then Janice is going to walk us through a discussion on ESG reporting.

Janis Rod:

Hello, thank you so much, David, Ben-Ari, Dean and Brenna. I have to say it's music to my ears to hear ESG permeate through the conversation. I've been working in this space for almost 25 years now, and it's just really rewarding. This'll be a bit of a rapid fire in terms of in terms of my section, with just level setting and why it's important. My colleagues have already set that for me. Then talking about the new and proposed reporting, which will then lead into our regulator that will come on. But David, before I delve in, did you want to unpack their results of your polling question?

David Kirsch:

Yeah. If I can come off of mute, there we go. It looks like the majority are moving towards proactively communicating with their stakeholders, which is really a key way of getting into this, especially if you're not just talking to your stakeholders, but you're also actively engaged in listening to them so that you can align your strategies with what they want to do. And then tracking social societal developments regularly, and then where we come in third is in collaborating with sector peers. I think all of that is really great, part of the entire suite is what we would recommend to do in part of your approach, but that is encouraging to hear.

Janis Rod:

Thanks, David. This section “Market factors driving ESG communication demands” just sets the stage for some of the announcements that you've been hearing, which I'll unpack quickly, and then I'll be unpacked further when the OSC speaks in the Canadian context. Many of these, and again, so rewarding to me, but in terms of why ESG is important and what it is, these are conversations we've been having for a long time. It's just so rewarding to see the buy-in with mining companies that we work with all day every day, but also key stakeholders, right? From your investors, from your employees, and I heard Brenna talk about the importance of a good ESG story and really embracing that as a mining company on your story and how you fit into that — that's really important for reducing turnover on attracting talent. Obviously, investors are key in terms of their own portfolio and questions that they're asking and pressures, and we'll unpack that a little bit more. Customers came up, David and Ben-Ari brought that forward as well in terms of the supply chain. And when Dean was speaking of demand for particular metals, renewable energy batteries, et cetera, that's a key demand as well, and regulators, which we'll talk about at the end of my session.

Not on the slide, but so integrated into mining, and always has been, are the local communities on that social license to operate. Mining companies that I've worked with historically have always integrated to some extent, ESG with that local community lens and the importance of mining on the ground in the community. But now it's really formalizing that, and as we'll talk about before the end of my section and leading into the next, being more formal in terms of reporting that out, and then from that link with climate change and the responsibility, both from transition, but also physical risks. These are the reasons of why ESG is so important and why it was pinging in my ear when I listened to my colleagues speak.

I'll go to the next slide, which shows that EY does a global investor survey every year. I had the pleasure of joining this conversation last year and this is an update. If we compare year over year, you'd see the numbers creeping up and approaching a hundred percent. But it's simply in terms of investors, the view on ESG performance as an investment strategy and how that drives their decision-making because it makes good business and it seizes opportunities to create long-term value and reduce this risk. This is only increasing for various reasons that my colleagues spoke of and the COVID-19 pandemic certainly being part of that. Investors increasingly demanding that ESG would be integrated into the furniture and that it's not considered leading edge, it's really table stakes right now. From a climate perspective, that risk and opportunity management and carbon reduction initiatives should be a key part of any company, but especially in mining companies’ strategy.

We'll take a few moments just to unpack COP26 in terms of what we heard and then reflect on that from a mining perspective specifically. These are some of the goals, the trends and the aspirations that were part COP26, and that are part of the vernacular for the reasons we just talked about, including ending deforestation by 2030, slashing methane emissions by 30% by 2030. More than 40 countries have ended investment in new coal power generation and pledged to phase out of coal by 2030 in richer economies. These are some of the aspects, and then just the greening of the financial system aligning with the Task Force on Climate-Related Financial Disclosures (TCFD) and addressing those risks. These are all key aspects that have been in the vernacular before COP26 and have really emphasized that.

One of the exciting announcements, especially for me and my team, We work on ESG and disclosure and strategy all day every day, was the announcement of the International Sustainability Standards Board. it's a sister of the International Accounting Standards Board. Last year, I'm sure in the conversation I talked about trends and how there will be a convergence, and this is exactly what we're seeing here. It's an opportunity because it allows companies to really understand the playing field and be more clear into the expectations and how they're disclosing. In terms of funding from private and public institutions, that's also an aspect that has come out of COP26. Specifically, Canada has commitments in terms of the support to end international unabated fossil fuel funding by a certain time, pricing on carbon, et cetera, and that move toward net zero. These are all key aspects that we heard about at COP26 and that are moving forward. Specific to the mining sector, the impact to you is in terms of greening your operations, which has always been part of what mining companies do all day every day because it had directly and still does affect your bottom line. It's just becoming increasingly important for other reasons. The new coal commitments, we heard about that from my colleagues as well, as well as the shifting demand to critical minerals and that role of financing. When you're doing a raise and looking for investors, increasingly the investors, not just the sophisticated ones that we think of, but all investors are asking key questions and they're getting pressure in terms of decarbonization of their portfolio and having an ESG strategy embedded in what they do. This gives the opportunity for collaboration, for cross-sectorial, cross-geographic collaboration. In many mining companies, it gives the opportunity to lead. It gives the opportunity to tell your story and really tie it together.

That was a sort of rapid-fire setting the stage. Now what I will do here relatively quickly is dance over some of the new announcements and expectations in terms of ESG reporting and how that convergence and clarity is happening. There have been rapid changes. I won't go through the detail on this slide, but maybe what I can do is just sort of pick up the last two points, which includes mandatory climate reporting in the UK in terms of all listed companies and large asset owners disclosing in line with TCFD.

In the Canadian context, we view that as certainly trend-setting, and it will likely follow in other jurisdictions. My colleagues from the OSC will unpack this more, but the CSA proposing climate-related financial disclosures that are largely consistent with TCFD. That's a proposal now, but hearing that in the Canadian space is key. And also the SEC in terms of the existing requirement from human capital, which is a little more qualitative and discretionary, but are proposals from a climate perspective. And these are very recent but really illustrating that trend of convergence and clarity and aligning the non-financial reporting to financial reporting, which is what good mature strategic ESG should be.

Similarly, we have a polling question here as well. What we're asking is, how prepared are you right now? How are you feeling as you know, as you listen to my colleagues and myself talk? When you've been hearing the announcements in the last few months, specifically on reporting requirements climate, specifically moving from A to E, you're just not there at all and this is a huge ground upswell to being somewhat prepared; and C, are you well-prepared in that you already publicly disclose this information. Maybe you have some assurance practices on it. There's comfort there. You have clearly defined strategy, you know where the data's coming from, you roll it up corporately and you've been disclosing on it. There's that range of being prepared and we just kind of wanted to do a temperature check.

While you're thinking about that, I'll unpack a few aspects. I mentioned SEC just to bring that home a little bit. From a climate perspective, that hasn't been finalized yet but including emissions Scope 1 and Scope 2, which are a direct and indirect; and an aspect of Scope 3, which looks at the whole supply chain and is a complexity that every company, especially mining companies, will have to increasingly grapple with. Integrating this into annual reporting, again, that convergence of non-financial reporting with financial reporting is key. That's a development and that builds on human capital disclosure, which have been a requirement for about a year now. A little bit more discretionary and a little bit more qualified as opposed to quantified, but aspects of workforce demographics and turnover and culture, health and safety, human rights commitments, et cetera. Just to give us the lens of where the SEC is and where it's going right now.

I will just unpack, in terms of preparedness, I'm looking at the polling answers as they come forward. The majority is kind of in the middle range, kind of somewhat prepared. But if there's also a fair amount of colleagues who are really not prepared at all, or just a little bit prepared, and the minority being prepared or well-prepared — which if you had asked me in advance, that's sort of what I would have expected. Having said that, we're really all in this together, and it is absolutely a journey in terms of a multi-year timeline to really integrate, especially climate into your annual reporting and your financial reporting.

Just to speak a little bit about the EU and that proposal that was brought forward — I don't think the acronym is spelled out there, which is the Corporate Sustainability Reporting Directive — the CSRD that replaces the non-financial reporting directive. Again, following on that trend of integrating ESG and data from ESG into financial reporting, into that rigour, from how you collect the data and your systems and controls through to your assurance, that's the trend that's moving forward. It should really be viewed by mining companies as an opportunity to really invest in that, because there are risks associated with having data and disclosing on data that at the end of the day, doesn't have that rigour that your financial data does. Requiring that rigour and raising the tide lifts all boats aspect, is what I see. I find this really exciting and interesting.

I'll just touch a little bit on the IFRS in terms of that proposal that came forward about a year ago, but it was really just in the last month during COP26 that that announcement of the International Accounting Standards Board and two prototypes have been released so far, one focusing on climates, probably not a surprise, and the other one more general, with additional protocols to follow. Again, that trend and that clarity, which through companies that we work with, really that's what you're looking for, is that clarity of what you need to disclose and when and how.

I will let my colleagues from the OSC unpack this in detail, but as part of that suite of recent announcements, the CSA has a proposal for mandatory climate-related disclosure requirements, which was released in October. I will let my colleagues speak more about that in detail as part of the OSC perspective, but from that Canadian lens that TSS listed companies, there will be a requirement to some extent to do TCFD-related disclosure by perhaps 2023, is something that all of our clients, but especially in the mining sector, are starting to plan for now, because it is a multi-year journey. That was a rapid-fire, but again, my colleagues are talking about ESG throughout this whole section. I'm going to hand it over to Ritika and Alex, thanks so much.

Ritika Rohailla:

I just want to introduce myself, I'm Ritika Rohailla from the Office of the Chief Accountant and presenting with me is Alex Fisher, who's also in the Office of the Chief Accountant. We have two items on our agenda for today. First, is that we want to talk about our new National Instrument, 52-112 on Non-GAAP and Other Financial Measures. Then as Janis mentioned, we're also going to unpack some of the climate-related disclosures. Before we get into it, I'll just note that the views that Alex and I are going to express today are our own, and don't necessarily reflect those of the Commission or its staff. Alex, I'll pass it on to you for the non-GAAP discussion first.

 

Alex Fisher:

Great. Thank you. Can you hear me well Ritika?

Ritika Rohailla:

Yes I can.

Alex Fisher:

All right. Fantastic. Well, thank you, everyone. And thank you for inviting me to chat with you about one of my favourite topics, which is non-GAAP financial measures. What I really want to talk about is a brand new securities law on the topic of non-GAAP financial measures. Non-GAAP is a topic that is frequently discussed by securities regulators, not only in Canada but globally. In Canada, such measures have grown in popularity with approximately 95% of the TSX 60 reporting non-GAAP financial measures, and this spans across all industries, all sizes, and mining is an industry where non-GAAP is common. Our original Staff Notice, which was called 52-306, was issued about 20 years ago. And we've updated that notice several times to address evolving or new circumstances. During this time we issued reports, notices, other publications on the topic of non-GAAP and cited disclosure deficiencies.

Over the years though, we've also found other measures that don't necessarily meet the definition of  non-GAAP financial measures to be equally problematic if disclosed outside of the financial statements, because they lack context when such disclosure occurs. About a few years ago, investors were knocking on our doors. They were sending us comments, we had a few large Globe & Mail and National Post publications on the topic of non-GAAP. All of these findings really called for action, which ultimately led to the issuance of this brand new securities law on the topic, which is replacing our staff guidance. This rule was issued in spring of this year, and we'll talk about effective date shortly.

Before we go on, I want to make it very clear that this, a securities law or instrument, sets out disclosure obligations and those are disclosures for outside of the financial statements, which substantially incorporate our disclosure expectations in our historical Staff Notice 52-306, but they cover a broader range of spectrums. You can see on the slide, we cover non-GAAP, which has historically been covered, but we also address other financial measures that when they're disclosed outside of the financial statements, could really lack context, which includes certain segment measures.

The effective date has been staggered for reporting issuers. It applies to disclosures for financial years ending on or after October 15, and for non-reporting issuers, it really applies after December 31. If you are a reporting issuer and you have, for example, a December 31 year-end, you're going to first or initially apply these disclosures to your annual filing i.e., your annual management discussion analysis, your annual, et cetera, et cetera, whatever those documents may be.

We can go to the next slide for a disclosure perspective. This slide is a bit overwhelming. It's a summary and I’m not planning to go on all of these details, but I did want to give you a snapshot that the disclosures expectations, like I said, substantially incorporate the expectations in 52-306. What you've been doing, if you've been meeting the expectations on non-GAAP in 52-306, these disclosures should be very familiar to you. The requirements for non-GAAP financial measures, that column that says non-GAAP are substantially the same. They've been expanded for clarity and precision and are actually simplified in certain areas because now we permit incorporation by reference in certain instances, like cross-referencing in certain instances. The requirements for forward-looking non-GAAP financial measures have been simplified. Then as you can see the other column where it says other financial measures, really those disclosures have been scaled to address the risks and we don't expect you to do the exact same level of disclosures as non-GAAP. Why? Well, because some of these measures are already included in the notes to your financial statements, therefore some disclosure already exists. And what are these disclosures — the bread and butter, a reconciliation back to the numbers of the financial statements; making sure the non-GAAP numbers are not presented with more prominence; making sure that investors clearly understand why a non-GAAP measure is useful. I can pause there for a second, let people digest this and see if they have any questions.

We go to the next slide, companion policy. Preparers in particular, over the years, have asked us for clarifying guidance on what we expect in relation to non-GAAP financial measures. We have tried to respond to that need by issuing a companion policy that includes guidance, examples, illustrations, interpretations, and in particular, a flowchart that preparers asked us to include. We issued this flow chart in our consultation and received positive feedback, and so we've now incorporated that flow chart into the companion policy. We and I urge all attendees listening today to please download the instrument and read the instrument and the companion policy. I'm going to pause here to see if there's any questions. I think we are going to be taking questions towards the end, but I'll give people an opportunity to submit questions that they have and then I'll pass it off to Ritika.

Ritika Rohailla:

Great. As was discussed by the previous EY presenters, the focus on climate-related issues in Canada and internationally has really accelerated in recent years, but climate-related risks are inherently hard for companies to assess and quantify. That's simply because they're subject to a greater degree of uncertainty, and it's this uncertainty that can make it hard for companies to meet their disclosure obligations in this space. If we consider securities legislation as it exists today, there's three key requirements that currently derive disclosure, a certain climate-related information in our reporting issuers regulatory filings.

The first is that public companies have to disclose any material commitments, events, risks, or uncertainties that they reasonably believe will materially affect their company's future performance. Secondly, they must also provide a disclosure of all material risk factors. And third is that if a company has implemented environmental policies that are fundamental to its operations, then it also has to describe those policies and the steps that it has taken to implement those.

Then, as Janis mentioned, in October, the CSA published for comment proposed National Instrument, 51-107 on climate-related disclosure. There were many drivers that led to the publication of this. Some have already been touched on, and one being the increased investor interest. The proposed instrument responds to calls from investors to standardize climate-related disclosures. Investors have told us that they want access to enhanced climate information as they become more focused on this information in making their investment decisions. Some investors have also expressed concerns that the disclosure that they currently get is not sufficient. And certainly, as the CSA, we have also seen this insufficient disclosure.

Back to our most recent review in 2021, it looked at 48 issuers. And we did find that most issuers were providing increasingly more climate-related information compared to when we last did the review back in 2017. A lot of the times we saw that the disclosure was still fragmented or vague or boilerplate. There clearly continues to be areas for further improvement in this space. Global developments is another driver — there's growing convergence amongst regulators to align disclosure requirements with that of the TCFD. Then separately in March of this year, the Ontario government included in the provincial budget direction that the OSC mandate companies to provide ESG disclosure that complies with the approach adopted by the TCFD. As climate-related risks have increasingly become a mainstream business issue in Canada and across the globe, we published these proposals in October.

As I mentioned, our proposals generally aligned with the four core disclosure elements of the TCFD recommendations. The first being governance — our proposals would require issuers to disclose how its board and executive officers oversee, assess and manage climate-related risks and opportunities. Issuers would also be required to disclose their climate-related risks and opportunities over the short-, medium-, and long-term, and the impacts of those risks and opportunities on the business, strategy and financial planning. Issuers would also be required to provide information on risk management, and specifically to disclose how they identify, assess and manage climate-related risks. And lastly, under the proposals, an issuer would need to disclose the metrics and targets that they use to assess and manage climate-related risks and opportunities.

While the proposed rules do incorporate many of the TCFD recommendations, there's probably two modifications that are noteworthy. The first is that under the proposed rules, Canadian companies would not be required to do a scenario analysis describing the resilience of their organization strategies under different climate-related scenarios. The reason for that is twofold — first, is that we acknowledge that scenario analysis may be costly to do, and also that the methodologies to do this may not yet be mature enough; the second modification is that our proposals would allow companies to emit GHG emissions reporting. While the TCFD recommends disclosure on all GHG emissions that fall within Scope 1, 2 and 3, the proposed rule would allow a company to publish the reasons for emitting emissions information instead. Having said that, as part of the consultation, we're also soliciting comments on whether the proposed rules should make disclosure of Scope 1 emissions mandatory for all companies. And then lastly, in terms of timing, these proposals are not expected to come into force before December 31, 2022. There would also be a phase-in period, such that they would apply for non-venture issuers beginning with their annual filings that are due in 2024, which is their 2023, December 31 year-ends. And for venture issuers in 2026 for their 2025 annual filings.

We talked earlier about what was driving the proposals, but I also just want to briefly highlight the objectives and what they're trying to achieve as well. We think that these proposals will address and reduce the costs for issuers that are currently associated with perhaps reporting across multiple disclosure frameworks. As well, they're meant to improve access to global markets and facilitate an equal playing field. And of course, to provide investors with the consistent and comparable information that they're looking for.

Lastly, I just want to touch on some international developments. One of the earlier presenters also noted that the IFRS Foundation is establishing the International Sustainability Standard Board. Related to that, I will just highlight that IOSCO, the International Organization of Securities Regulators is also actively involved. A Technical Experts Group was formed, which staff at the OSC are part of, and that group has been actively providing input to the IFRS Foundation as it develops its draft of the prototype of sustainability disclosures.

That was all that we had today from our perspective, the contact information for Alex and I and others in our group is listed here. Feel free to reach out to us if you too have questions after the fact. I will pass it over to Eric to wrap up the presentation. Thank you.

Eric Simmons:

Thanks, Ritika, thanks, Alex, for joining us annually for the session. We’ve certainly been having lots of conversations with our clients about those two topics, and for everyone on the line, I do encourage you to read the proposed National Instrument on climate-related matters. I could be wrong, I think the public comment period expires in January. It’s coming up but it's definitely worthwhile to get input. And Ritika also mentioned IOSCO is involved in some of the standards that are being developed. I think IOSCO helped bring IFRS to the global securities markets. It's really interesting to see the international players being involved in trying to develop the standards as well. Certainly lots happening right now on that topic. A reminder again, please feel free to submit questions as we go, and as Ritika and others have said, I'm going to be speaking to you on comment letter trends and IFRS developments.

Starting right off, I want to start with a polling question. Do you expect changes in your disclosures next year, over any of the below areas and select all that apply? Macroeconomic trends, inflation supply chain — very hot topic right now — climate-related risks, human capital or cybersecurity. I'll give that a go while I continue here for a bit.

There are maybe less major accounting changes this year and we will get to them in a moment. But we are seeing users leverage a broader array of information within the public record than ever before in making investment decisions. That's why we're seeing a lot of companies taking a turn back to their disclosure, and we're certainly seeing the regulators taking a turn to different aspects of your disclosures as well. We do a publication annually where we summarize our research around SEC comment letters, which are public. What we saw this past year was that there actually has continued to be a trend at the SEC of less comments, but a higher concentration of them on larger issuers. Usual suspects are near the top on the non-GAAP measures, MD&A, segment reporting, COVID-19 risk factors. In the mining space specifically, the usual kinds of comments are around expanded disclosures on exploration and categorizations of proven and probable reserves.

Looking ahead though there has been some more vocalization from the SEC around climate change in cybersecurity. The SEC has come out and essentially said, look, this guidance has been around since 2010 on climate-related disclosures that we've set up expectations for. And in fact, just a month or two ago, the SEC has now published a sample comment letter to show you the kinds of questions they're going to be asking about that historical guidance that already exists. They said they might also ask registrant's how they're considering whether to disclose material effects of risks relating to the changes in the business that might be necessary to respond to climate risk or, hey, you've got this giant sustainability report, but you don't mention it at all in your annual report. Seems kind of important.

The other one that's an interesting one is on cybersecurity. A great example question we’ve thrown in is that you indicated, to date, unauthorized users have not had a material impact on your company. How do you know? And I think we're starting to see disclosures over cybersecurity being revisited, not in terms of what might happen, but what does happen and how the company mitigates the risk.

Similarly in Canada, I'm not going to spend too much time on this slide. We've spoken to it a bit in our prior year presentation, but from a Canadian regulatory action perspective, certainly, we've seen the same types of publications around COVID-19-related disclosures and guidance and the need for enhanced disclosures related to COVID-19. In the other publication that the CSA published — it was published bi-annually now that they publish their continuous disclosure reviews — we covered that in more detail at our prior year FRD. I'm happy to move past that unless there's comments or questions that anyone would like me to cover. Perhaps I'll just quickly summarize the results of my poll. The top two, it's a tight heat, the top two ended up being the first two implications of macroeconomic trends in climate-related risks. Not a lot of surprise there, but there was quite a bit of uptake on the other two as well.

I'm going to cover a couple of accounting topics and try to do that briefly, the first being the IASB’s Extractive Industries Project. IFRS 6 Exploration for and Evaluation of Mineral Resources was actually a temporary standard that came out in 2010. Many of our junior mining clients are very, very familiar with the standard. Of course, it allows for a policy to capitalize exploration assets that would not otherwise meet the definition of an asset in your IFRS. It permits different impairment tests to be used and various other accommodations, specifically for the industry. What they decided to do was open for comment how are people finding the standard, 20 years on or 10 years on. Basically asking all kinds of questions of the industry. They conducted significant outreach and they were asking everything from, do you find capitalization to be useful? Do you find the impairment indicators are being applied, or are they useful? And they actually opened it up even wider and they started asking, would you find reserve and resource information in the financial statements to be useful? Generally speaking, the feedback was, we don't really want you to explore those areas too much. We're fairly comfortable with IFRS 6 the way it works. The one thing we wouldn't mind is that the letter of the law in IFRS 6 doesn't tell us very much about what we need to disclose about our exploration, evaluation, expenditures and activities. I think the main area they'll continue to pursue here is perhaps requiring more disclosure on those activities. Other than that, the only other development was to say, hey, maybe this shouldn't be a temporary standard anymore. This seems like it's sort of has general usage and people seem relatively happy with the standard as it stands. Stay tuned on that one. The board is going to continue to progress on that project, but that's a super high-level summary of what occurred this past year.

I spoke at depth about the standard that relates to proceeds received before an asset is ready for its intended use, and many of the listeners on the call are quite familiar with that. I spoke at our last annual session, and so I'm probably not going to cover implementation very much here in terms of the effective date, but it's on a slide for you. But what I wanted to highlight is for those calendar year-end filers, it's a good reminder that you are meant to quantify the effects of future changes in accounting policy if known and disclose it. If you do have projects that are entering commercial production this year, you're very likely going to need to make that retrospective restatement next year. To that degree, if you know what that number is going to be, you're meant to disclose it. That’s just a quick reminder for those of you in that situation.

But what I want to spend time on is really talking about what we're having conversations with our clients about, which is a lot of the implementation issues. A great example would be that inventory requires you to allocate fixed production overheads, including depreciation on production equipment when it's not depreciated on units-of-production basis, but it requires you to think about this concept of normal capacity. But how do you do that in a situation where you're not at your normal capacity? Judgment is being required in determining how best to make those allocations in the absence of formal guidance. Another question came around, well, it wouldn't be unusual situation that perhaps you received some proceeds when you're still in the exploration stage. While this standard didn't actually amend IFRS 6, it only amended IAS 16 and IAS 38. The jury's out on what you would do there and I think many would say that perhaps you've established a policy under that already and that policy may not need to change.

Lastly, the determining of the unit of account might start to see companies look at things a little bit more granularly in terms of evaluating whether a specific asset is ready for its intended use, or maybe looking at particular extensions to align and scoping their assessment as it's ready for use a little bit more granularly than before. Another related area that I've seen and had conversations with clients about include, this is raising to the forefront things like, when do I start recognizing inventory? And what is inventory? Marginal ore stockpiles is typically an area where companies will establish an accounting policy. When you're in that development phase now, and you're going to be pushing that inventory through cost to sales, despite it not being fully in production, identifying what you're calling inventory is very important. And so what are your criteria? People are opening up conversations about that again. It’s worth having a reminder that this amendment doesn't directly impact the actual accounting for reaching commercial production. So, the commended depreciation stopping capitalization of borrowing costs, et cetera. Just a reminder for everybody that that doesn't really actually change. Finally, the last reminder, I would say is for your operating and capital cost guidance — keep in mind, there may be additional analyst education that you might consider in the context that you are now talking about production costs, going through your P&L and your income statement for minds that may be at a much earlier stage of their development cycle in terms of ramp-up in costs. How are you messaging this to your users? Certainly a lot of conversations we've had on the topic above and beyond the standard itself. I just wanted to go through those to think about.

Just another couple of topics and reminders. There is an amendment occurring for income taxes whereby when you're recognizing deferred taxes related to assets and liabilities that arise from a single transaction — great examples would be decommissioning costs or leases — there is no initial recognition exception anymore. You are meant to recognize the deferred taxes on those temporary differences now. Prior to now, some companies applied counting policy choice on this. It's worth chatting with your tax teams to make sure that they're aware of this change that's coming in 2023 with early adoption permitted.

A couple other things I'll just throw on the radar for you regarding IAS 1, there's been a lot of discussion around an amendment underway. Really, I would highlight it more. If you have covenants where the test date occurs in the 12 months following year-end, it's an important development to pay attention to, although it looks like that's not going to happen until potentially 2024. Costs necessary sell inventories — there was a minor IFRIC agenda decision to this. Not very relevant to the mining industry, to the extent that it really mostly hones in on selling costs and whether people should be including selling costs within their NRB tests. For the most part in the mining industry, selling costs tend not to be that significant but if they are in your case, it's worthwhile taking a peek at that one.

And the last one is more of a reminder, perhaps maybe more so for some of our clients that make acquisitions of smaller mining properties, that there was an amendment that came into effect in 2020 related to the definition of a business that allowed for a concentration test to be used if substantially all the value was concentrated in a single asset or a group of similar identifiable assets. There was a potential out from having to account for that acquisition as a business. I’m mentioning it, or more as a reminder, because it is a scenario that does come up quite frequently in the mining industry and it’s worthwhile mentioning it because it's relatively new. With that, I want to wrap up the formal part of the presentation and take some time for the questions that have come in, or if there's any other reminders Dean that you want to share with the audience.

Dean Braunsteiner:

That's great Eric, I think what we'll do is, we've got time for a few questions and I've got a few that have come in so maybe I'll ask away, but certainly if there are others, keep them coming in. Janis, maybe I'll point this question to you — in an organization, who should own ESG reporting? There seems to be some discussion, whether that should sit in finance or some other part of the organization.

Janis Rod:

That's a great question. A few things, there is no one size fits all. It really depends on the organization and how everything is governed within the particular company, but we do often use it as an indicator when we're discovering a company of how mature it is. If ESG is governed at the C-suite, especially the CFO, it shows a really high level of maturity and integration. Other aspects could be the COO as well. Again, it depends on the structure, but the objective is making sure that there is clear accountability from the board to the C-suite, to the executive, to on the ground site, within your governance structure. And that it isn't just a pillar and it crosses over the organization, but the CFO is a great indicator of maturity.

Dean Braunsteiner:

And I think this might apply to you as well. Have you seen any instance where, based on ESG ratings, companies have not had access to capital or capital has been more expensive?

Janis Rod:

Yeah. Short answer is yes. Absolutely, we're seeing that. Again, because the ESG, when thought of maturely as we are doing now, and as I heard today from you and other colleagues and my clients every day, is that it is risk. To manage those risks, a company has to have real financial materiality. And of course, that affects your ability to access capita. And in terms of investors, financial institutions, just that level of maturity and understanding of that as a risk, but also leveraging ESG to add value, to add long-term value to your organization, by seizing it as an opportunity where that makes sense for you is absolutely key. So short answer is yes.

Dean Braunsteiner:

And we've got a couple of questions for the OSC folks. Maybe I'll start with Ritika — it's about regulations around climate change in ESG reporting. You mentioned TCFD — is there an approach globally to drive some sort of consistent reporting framework similar to IFRS. Do you think at some point TCFD will flip to some other regulation? I'm not sure Alex or Ritika, which of you wants to answer that question.

Ritika Rohailla:

Sure. I can start. I think with respect to whether there's an approach to drive that global consistency, I think we might start to see that by some of the work that the IFRS Foundation has done with the establishment of the International Sustainability Standards Board. In the meantime, I can say I know that a lot of regulators across the globe are starting to bring in requirements for companies in their jurisdictions to comply and align themselves with the TCFD disclosure requirements. I think as this matures and as we evolve, we will eventually get to some sort of a consistency.

Dean Braunsteiner:

And the follow up question to that would be as it matures, is there an expectation from regulators that more assurance will be requested on those reports?

Ritika Rohailla:

That's a difficult one to answer. I think it's fair to say that there will be a demand for more assurance. I think we need to look at the framework that we currently have in terms of ISAE 3000 engagements and whether those are sufficient. I think that those discussions will continue to happen if they aren't already.

Dean Braunsteiner:

Okay. No, that's great. Thanks for that insight. And then the final question Alex, just on, on non-GAAP measures, the question is that this seems to be a recurring theme for the last number of years. Is it reflective of a more systemic issue in financial reporting?

Alex Fisher:

Oh, do you have an hour?

Dean Braunsteiner:

30 seconds or less.

Alex Fisher:

So, you know Dean, yes and no. Meaning sure, sure, some non-GAAP tries to better explain certain complexities in financial reports and certain noise that goes through there, certain non-cash accruals acknowledged. I think that's a factual statement that as financial reporting has gotten more complex, we are all looking for the quick fix of what number we can give that investors demand that they can process that information. I think that's fair, but I don't think that's the end of it. I think there's really two other things driving it. One is maybe a misunderstanding of what the purpose of non-GAAP is supposed to be and the fact that investors are using it, but most of them don't understand the number that's being presented them solely for the fact because there's insufficient disclosure on what the components are and how does it relate to the gap statements? If you're telling me adjusted net income is X well, what's the difference between that and net income? Why are you using similar terms to the financial statements? Like I don't understand which number is which, so to the extent that there could just be a bit more clarity and transparency that would solve, I think the majority of the issues. And I've always said to people just take a fresh read, imagine you're brand new to the company, would you understand what that number is and how it relates to the financial statements? And if the answer's no, that probably means there needs to be some better disclosure. That's the short of it.

Dean Braunsteiner:

This sounds like we might be able to have a much deeper and longer discussion on that. We'll have to think about that as a, as a next topic of discussion. We've run out of time. Once again, we'd like to thank all the presenters today for sharing their perspectives on the various topics. Clearly mining has a critical role to play in the green agenda. Metals and minerals will be in high demand. ESG decisions will impact company's ability to attract capital investment. And obviously, regulators are very interested in how companies are presenting and reporting on ESG initiatives. Certainly something to stay tuned and continue to follow. Thanks everyone for attending, certainly appreciate it and have a wonderful rest of the day.