PDAC 2016: How the mining well is running dry for the TSX Venture Exchange

March 8, 2016

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Mining has for years served as the anchor of Canada’s junior stock market, the TSX Venture Exchange.

But as pretty much everyone knows, this isn’t the greatest time to be a junior miner looking for exploration capital. Small wonder, then, that the Venture recently published a white paper seeking comments on a variety of ideas to “revitalize” itself and expand liquidity.

The data reveals the size of the problem. At the peak of the boom in 2007, miners raised $4.28 billion through 418 equity offerings on the TSX-V. In 2015, junior miners raised only $175 million through 29 deals. For much of the past decade, mining issuers made up at least 40 per cent of listings on the junior exchange. Last year, they made up only 10 per cent.

In some ways, the TSX-V is a victim of its own success. For years, it marketed itself as the world’s paramount exchange for anyone needing risk capital for junior exploration projects. Then the boom went bust.

“You build a business on a platform like that and when the commodities cycle pulls a 180 and goes the other direction, you find yourself with a lot of rotten fruit on a very big tree,” says Richard Fridman, a partner with Davies Ward Phillips & Vineberg LLP in Toronto.

Mike Amm, a partner with Torys LLP in Toronto, says the TSX-V’s white paper has some terrific ideas that might make listing or raising capital easier for issuers. But loosening listing requirements or streamlining the process only helps if those are the things that are keeping companies from looking to the exchange to raise equity or that are preventing people from investing in TSX-V listed stocks.

At the end of the day the problem is that investors just don’t want to put money in the mining sector right now, Amm says. “So there’s really not much that the TSX-V can do to improve the situation until commodity prices improve.”

Little surprise, then, that one of the three main strategies described in the TSX Venture’s white paper is to diversify its stock listings away from resources. It’s also looking at reducing administrative and compliance costs and enhancing liquidity.

Rob Murphy, another partner with Davies Ward, says there is some value in reducing some compliance costs — in so far as the exchange can. Securities regulators set most of the compliance rules. “They really have a more limited hand to play when it comes to reducing compliance costs. And I’m not arguing they should reduce compliance costs. There’s just less they can do.”

The TSX-V’s white paper lists several ideas, such as revising the rules on when shareholders must approve certain events or transactions involving inactive companies. A meeting can cost between $20,000 and $50,000, so eliminating the need for perfunctory gatherings could save time and money.

You find yourself with a lot of rotten fruit on a very big tree.

Eva Bellissimo, a lawyer with Cassels Brock & Blackwell LLP, says active companies also need flexibility, speed of execution and creativity. “What about active companies? They’re the ones we need to help save.”

At the same time, lawyers recognize the exchange needs to keep some rules in place to preserve its brand and distinguish itself from competition from places such as the over-the-counter market in the U.S.

“It’s a fine needle they’re trying to thread by appearing more hospitable to issuers while also not compromising the integrity of the market by reducing regulations,” says James Clare, Bennett Jones LLP.

But in the end, the TSX-V is just a market, much the same as the grocery store, observes Henry Harris in the Toronto office of global firm Gowling WLG. “A stock exchange does not create the product that’s on the shelf. If there are problems in producing demand for the product, that’s not directly a function of the exchange.”

The TSX-V recognizes in the white paper that it needs to create some positive awareness about itself and showcase some of its listed companies to investors.

This is an important part of the mix, Harris says. “Make that marketplace or supermarket a great place to be. In the meantime, reduce the regulatory burden of listing and raising money by keeping fees down.”

The TSX-V recently held “town hall” meetings in Vancouver, Calgary, Toronto and Montreal to collect feedback on the white paper. It says it found those meetings so helpful that it’s planning several more gatherings in smaller communities across the country. So you should have a chance to share your views, too.


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