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

Mining has for a long time served because the anchor of Canada’s junior stock exchange, the TSX Venture Exchange.

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But as pretty much everyone knows, this isn’t the best time for you 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 suggestions to “revitalize” itself and expand liquidity.

The data reveals the size of the issue. In the peak from the boom in 2007, miners raised $4.28 billion through 418 equity offerings around the TSX-V. In 2015, junior miners raised only $175 million through 29 deals. For much of yesteryear decade, mining issuers composed a minimum of 40 per cent of listings on the junior exchange. Last year, they made up only 10 %.

In some methods, the TSX-V is really a victim of its own success. For a long time, it marketed itself because 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 this so when the commodities cycle pulls a 180 and goes another direction, you find yourself with a lot of rotten fruit on a huge 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 procedure only helps if those are the stuff that are keeping companies from looking to the exchange to boost equity or that are preventing people from investing in TSX-V listed stocks.

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At the end of your day the problem is that investors just don’t wish to put profit the mining sector at this time, Amm says. “So there’s not really much 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 from resources. It’s also taking a look 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 as far as the exchange can. Securities regulators set the majority of the compliance rules. “They have a more limited hand to experience when it comes to reducing compliance costs. And I’m not arguing they should reduce compliance costs. There’s just less they are able to do.”

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

You find yourself with many different rotten fruit on the huge tree.

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

At the same time, lawyers recognize the exchange must keep some rules in position to preserve its logo and distinguish itself from competition from places like 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 whilst 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 because the supermarket, observes Henry Harris within the Toronto office of worldwide firm Gowling WLG. “A regular exchange does not produce the product that’s on the shelf. Should there be problems in producing interest in the merchandise, that’s not directly a function from the exchange.”

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

This is an integral part from the mix, Harris says. “Make that marketplace or supermarket an excellent place to be. In the meantime, lessen the regulatory burden of listing and raising money by continuing to keep fees down.”

The TSX-V recently held “town hall” meetings in Vancouver, Calgary, Toronto and Montreal to collect feedback around 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.

dhasselback@nationalpost.com
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