Agnico-Eagle Mines Limited, 2005 ONSEC 8

Ontario Securities Commission

Citation: Agnico-Eagle Mines Limited, 2005 ONSEC 8 Date: 2005-05-31

IN THE MATTER OF THE SECURITIES ACT R.S.O. 1990, c. S.127, as amended

AND

IN THE MATTER OF AGNICO-EAGLE MINES LIMITED

HEARING: April 28, 2005

PANEL: Wendell S. Wigle, Q.C. Commissioner (Chair of the Panel)

Robert W. Davis Commissioner

Suresh Thakrar Commissioner

COUNSEL: Judy Cotte For Staff of the Commission

Luis G. Sarabia Patricia Olasker For the Respondent

REASONS

I. This Proceeding

1The purpose of this hearing was to consider whether it was in the public interest to approve a settlement entered into between staff of the Commission and the respondent.

II. Agreed Facts and Admissions

2The facts appear to be unchallenged in that:

1. Between March 10, 2003 and March 17, 2003, Agnico-Eagle determined that a gold production shortfall could not be avoided as a result of the Rock Fall, which determination was a material change in the business of Agnico-Eagle. Agnico-Eagle failed to issue a press release forthwith disclosing the Rock Fall and the expected gold production shortfall and failed to file a timely Material Change Report with the Commission;

2. Agnico-Eagle's March Release was inaccurate in that the Rock Fall did not occur in March only but rather initially occurred between January 31, 2003 and February 9, 2003 and then resumed in March; and

3. On October 9, 2003, Agnico-Eagle determined that there would be a gold production shortfall, which was a material change in the business of Agnico-Eagle. Agnico-Eagle failed to issue a press release by October 13, 2003 disclosing the expected gold production shortfall and failed to file a Material Change Report with the Commission.

3It is clear that this conduct is contrary to the public interest for the reasons submitted by counsel.

4The terms of settlement we are asked to approve are:

1. That within 30 days of approval of the settlement, Agnico-Eagle will initiate a review of its disclosure and reporting practices and procedures by an independent third party, acceptable to both Agnico-Eagle and Staff, at the expense of Agnico-Eagle; and

2. Agnico-Eagle will implement any recommendations made by the independent third party referred to that are approved by Staff within a reasonable period, as approved by Staff.

III. The Commission's Role in Reviewing Settlement Agreements and Relevant Factors for Imposing Sanctions

5The issue is whether or not the sanctions are appropriate in the circumstances and whether or not it is in the public interest that we approve them.

6The factors to be considered in deciding the efficacy of the sanctions include:

1. the seriousness of the allegations;

2. whether or not there has been a recognition of the seriousness of the improprieties;

3. the size of any profit or loss avoided from the conduct;

4. whether or not the sanctions imposed will serve as a deterrent to others; and

5. the remorse and conduct of the Respondent.

7The role of the Commission Panel in reviewing the settlement is not to substitute the sanctions it would impose in a contested hearing for what is proposed in the settlement agreement, but rather that the Panel should ensure that the agreed sanctions are within acceptable parameters.

8Also, significant weight should be given to the agreement reached between adversarial parties, as a balancing of factors and interest will have already taken place in reaching the agreement.

IV. Application of Principles to this Case

9In this case, the conduct at issue is very fact specific. As such, there are no cases directly on point which would be of assistance in determining whether or not the proposed sanctions are in the public interest.

10We are advised that:

1. Management's initial determination that the Rock Fall was an isolated incident that would not have a material impact on production was reasonable, given that it occurred in a small portion of the mine. In fact, the area directly affected by the Rock Fall was scheduled to produce less than 1% of the budgeted gold production for 2003 and only 4.4% for the first quarter of 2003. In nine of ten of previous rock falls, Agnico-Eagle was still able to meet or come very close to meeting its forecasted annual gold production;

2. Even with hindsight, it is difficult to pinpoint an exact date in March on which management of Agnico-Eagle ought to have realized that a gold production shortfall for 2003 could not be avoided. Revising the mine plan is a complex, iterative process involving remodeling all areas of the mine by a team of mining engineers, geologists and operating staff. Agnico-Eagle completed three different iterations of the mine plan prior to its disclosure on March 31, 2003. It should be noted that Agnico-Eagle completed three further iterations after that disclosure in an effort to improve its gold production forecast for 2003. Although the disclosure was not timely, Agnico-Eagle should have been given some credit for disclosing the material change at a time when it was still looking at further potential improvements to its revised production forecast;

3. In response to the allegations made by Staff, Agnico-Eagle hired Graham Farquharson of Strathcona Mineral Services Limited to assess Agnico-Eagle's response to the Rock Fall. Mr. Farquharson delivered a report dated May 28, 2004, which Agnico-Eagle voluntarily provided to Staff. In that report, Mr. Farquharson concludes that the impact on gold production as a result of the Rock Fall would not have been immediately apparent to management, and Agnico-Eagle followed good mining industry practices in assessing that impact. Mr. Farquharson does not believe there was any deliberate intention to delay disclosure;

4. We do not have a detailed explanation for Agnico-Eagle's delay in announcing the expected gold production shortfall in October of 2003, because Agnico-Eagle agreed to admit that the disclosure was not timely very shortly after Staff identified the issue. Staff learned of the October 2003 disclosure issue when its investigation of the issues arising from the Rock Fall was already substantially complete. Rather than requiring Staff to undertake a subsequent investigation, Agnico-Eagle agreed to acknowledge, as part of this settlement, that the October 2003 disclosure was not timely, thereby saving Staff further time and expense;

5. On April 23, 2003, after the Rock Fall, but prior to these allegations being made by Staff, Agnico-Eagle established, as part of its Sarbanes/Oxley review of practices and procedures, enhanced disclosure controls and procedures for public disclosure documents. Agnico-Eagle's updated policy reinforces the principle that all communications to the public must be timely, factual, complete and accurate;

6. Agnico-Eagle immediately acknowledged its error in the March 31, 2003 press release and the error was a partial one. The fall did continue in March, but had begun in January 31, 2003 and continued in February and March of 2003. The more important aspect of the press release was the impact the Rock Fall would have on production, and that information was factually accurate;

7. Upon being advised of Staff's allegations, Agnico-Eagle immediately retained counsel and has co-operated fully, to an uncommon extent, thereby allowing this matter to be resolved quickly;

8. Agnico-Eagle's admissions eliminate the need for a full hearing and therefore conserve the resources of the Commission and save the public considerable expense; and

9. Agnico-Eagle has not previously been the subject of any proceeding before the Commission.

Conclusion

11After due consideration, the Panel agrees that the proposed sanctions are in the public interest because (i) they are in keeping with the purposes of the Act and the principles through which those purposes are to be achieved; (ii) they are proportionately appropriate with respect to the facts and circumstances of this particular matter; (iii) they provide public censure of such misconduct; and (iv) they will act as a specific and general deterrent.

12The circumstances of this case, with the co-operation and remedial steps taken by the Respondent commend to us that this settlement be approved as being in the public interest. It should be a warning to others that they should have proper reporting procedures for public disclosure in place and fully observe them. With this warning, any subsequent cases will no doubt attract more severe sanctions.