A landmark case now before Canada’s top court could have a significant impact on the way public companies disclose operational changes to investors, a securities lawyer said, potentially giving shareholders even more exposure.
The decision will have a “very long-term impact” on disclosure requirements in Canada and will “essentially affect every sector,” said Frank Suhr, a securities lawyer and head of the corporate practice group at Golling WLG.
“So any company, mining companies, oil and gas companies, manufacturing companies, engineering companies… actually any company that has operations that can be affected by an external factor (or) event should focus on this,” Sur said. In an interview with BNNBloomberg.ca last week.
“It is not limited to mining. It is broader than that. “
In March, the Supreme Court of Canada granted leave to appeal from the Court of Appeal’s ruling for Ontario. The case is between Lundin Mining Corporation and an investor over whether Lundin proved it had a reasonable chance of success in showing a rockslide at the copper mine, requiring prior disclosure under the Ontario Securities Act.
The investor alleged an unlawful delay in the company’s disclosure of the rockslide.
Lundin did not immediately respond to a request for comment.
To meet the definition of a material change under Ontario’s Securities Act, two elements are required, Sur said. The first is business activity or an event that causes a change in the company’s capital. Second, he said, the change will have, or is expected to have, a significant impact on the company’s share price.
“Now the second part is not really in dispute here… When Lundin disclosed this in their press release on November 29, 2017, their stock fell (about) 16 percent,” Sur said.
He said the trial before the Supreme Court would not take place until early next year.
‘err on the side of caution’
Before the Supreme Court’s decision, publicly traded companies are now “more likely to err on the side of caution and try to disclose as opposed to waiting until they have all the facts,” Sur said.
Sur says that if a client is unsure about a potential disclosure to him, he should disclose his advice.
“Because if you don’t disclose and you have to disclose later and your stock price drops, guess what? You’re going to file a class action lawsuit,” he said.
Given all the information out there about the activities of public companies, Surr says a balance is needed between disclosing information so investors can trade stocks in a fair manner, and “disclosing every single change” a company thinks is a material change.” He says investors may pay less attention if they have to sift through more releases. Said.
“So that means issuers can disclose more about material changes, and that means the investor has more information to sift through, and they have to pay more attention than before,” he said.
Canada’s capital requirements
Canada’s capital markets have some of the strongest regulations in the world regarding disclosures, according to Sur, adding that Canadian stock exchanges are resource-rich with many companies in the mining, oil and gas and energy sectors.
As Canadian exchanges compete with others around the world, he said he doesn’t think the more cumbersome disclosure requirements about material changes will affect the number of companies listed in Canada, but it won’t help Canadian exchanges attract more listings.
Mine landslide
The case now before the Supreme Court centers on when the company decided to disclose the mine disruption to its investors.
Lundin uses radar technology to monitor defects or weaknesses at its open pit copper mine, which accounted for between 55 and 65 percent of the company’s sales revenue in 2017, according to Sur.
He said on October 25, 2017, the company detected instability in the mine and a few days later a landslide led to the evacuation of personnel and equipment.
At the time, Lundin didn’t see the disruption caused by the landslide as a “huge deal,” he said.
Adjusted production forecasts for the mine fell 20 percent for 2018 and 2019, a press release at the time said, however, the company raised its 10-year production forecast by 20 percent.
“And of course, a 20 percent drop in global level would only represent a five percent reduction in its global output.”
Sur said that as a securities lawyer, he could see why the company didn’t see the disruption as a material change at the time and “felt good” about disclosing it to investors at a later date.
“Actually, the market didn’t see it that way, because their stock price fell 16 percent,” he said, adding that the stock drop represented a one-day loss of $1 billion in Lundin’s market cap.
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