LAWS, REGULATIONS AND PROCEDURES FOR LISTING EXPLORATION AND MINING COMPANIES ON CANADIAN STOCK EXCHANGES
| Jurisdiction | United States |
(April 2003)
LAWS, REGULATIONS AND PROCEDURES FOR LISTING EXPLORATION AND MINING COMPANIES ON CANADIAN STOCK EXCHANGES
McMillan Binch LLP
Suite 3500, South Tower
Royal Bank Plaza
Toronto, Ontario
M5J 2J7
Canada
Direct: 416.865.7931
General: 416.865.7000
Fax: 416.865.7048
Email: steve.vaughan@mcmillanbinch.com
Prepared for
Rocky Mountain Mineral Law Foundation
Lima, Peru
April 28-30, 2003
MCMILLAN BINCH LLP
[Page 15B-2]
Table of Contents
1. Introduction
2. Civil vs. Common Law Systems
3. Current Regulatory Regime
4. Overview of Canadian Capital Markets
The Toronto Stock Exchange (TSX)
Overview
Listing Requirements
The TSX Venture (TSX-V)
Overview
Listing Requirements
The Canadian Trading and Quotation System (CNQ)
Overview
Listing Requirements
4. Necessity to Canadianian to Create an Effective Market
5. Methods for Listing
Direct Listing
Reverse Take-Over
6. Advantages and Disadvantages of the Canadian System
Advantages
Disadvantage
7. Conclusion
———————
[Page 15B-3]
1. Introduction
For decades Canada has been a top destination for exploration expenditures and a leading centre for mineral finance and production. And if the past few years offer any indication as to its future success, Canada will continue to be one of the pre-eminent mining finance centres of the world. The natural question that flows from a statement like that is why? Why is Canada so successful in this area? What systems or characteristics enable it to continue to strengthen its capital markets, particularly in the mining industry? The answers to these questions are varied. Apart from Australia, for example, no other country has a fully vertically integrated mineral industry combined with financial markets knowledgeable about the mineral business and capable of financing it. The financial institutions and brokerage houses in Canada have matured to the point that they can play major roles in international syndications of mineral projects. However, these examples are only a small part of the answer to why Canada has been so successful. The rest of the answer is found in the market characteristics, legislation and regulation in place that continues to foster its growth.
Much of the Canadian success has grown from an impressive history of mineral exploration and exploitation within Canada, and a large part of the domestic success of the mineral industry must be credited to the provincial legislators of years past. These legislators had the foresight to develop a legal model that enabled prospectors to incorporate and ultimately create a system in which corporations could raise the necessary capital to develop their projects and prosper. Once in place this system has continued to evolve with and adapt to economic realities as they emerge.
This system, well established and clearly successful, offers opportunities to foreign mineral exploration and producing companies looking to raise capital for their projects. This paper will first provide an overview of the market and stock exchanges in Canada, then offer an analysis of how this structure exists within the Canadian legal framework. Having done so, the analysis will move to exploring the advantages and disadvantages to Latin American mineral industry companies contemplating listing in Canada for the purpose of raising capital for mining projects.
2. Civil vs. Common Law Systems
Before discussing the legislative and regulatory requirements that create a vibrant marketplace, it may be useful to consider the differences between the Canadian common law system and the civil law regimes that govern most Latin American countries.
Until the past decade, very little analysis had been done that compared the common and civil law systems, in particular, how such systems relate to mining law and mineral tenure. Apart from being systems of law, it is safe to say that there is no other common thread between them. It is trite to say that they were both derived from Roman law somewhere around 1066, on the heels of the Battle of Hastings, free men won the right to own property in England. This concept of "ownership" has evolved from that point forward to the current time when it is now an entirely different concept from the rights obtained by landholders under a civil law regime. Experience has taught us one thing for certain, and that is that the two systems do not mix. It is impossible to put a common law mining model into place in a civil law regime, much like you cannot pass a civil code Charter of Rights and Freedoms and insert that code into a common law regime.
[Page 15B-4]
Unlike the common law, civil law is embodied in a series of codes and statutes which, for the most part, are all encompassing. This contrasts greatly with the common law in which the law is largely derived from judge made law and is based on judicially developed precedents rather than legislated law. In both legal systems there are statutes, codes and regulations, but these relate to the public law, or law affecting the relationship between governments and its people. Under the English common law, contract law is almost entirely by creation of the English Courts and rarely does the legislature become involved. By stark contrast, in a civil law regime, even the law governing private interactions is based primarily in statute. The law is derived from a series of codes that are general in nature and not based or reliant on factual circumstances. As such, the civil law is more rigid and less amenable to change. It does not evolve over time as the common law has and continues to do. The common law system, largely because of its foundation in judge made law, is more flexible and responsive to societal changes.
Also crucial to note is the difference in interpreting the law under the two different regimes. Under a civil law system the judge has virtually no discretion to vary the law, rather must only consider the factual circumstances and fit those within the rules of one of the codes. Once done, a judge should arrive at a predictable legal answer. In a common law system, both the process and the outcome are entirely different from the civil law approach. Under the common law a judge has broad discretion to consider jurisprudence, contemplate the facts, and provide various statutory interpretations. The end result is a system in which the law can be created as necessary and as a result naturally evolves over time.
These differences are unquestionably relevant to mineral exploration and production corporations. In most civil law jurisdictions, one of the first paragraphs in the Constitution states that all mineral laws of the nation belong to the state and, accordingly, the granting of mineral or mining rights is a prerogative of the government. The procedure to acquire mining rights is carried out through a series of administrative procedures and an individual must comply with the legal requirements. Once granted, mineral or mining rights are usually subject to administrative intervention and restriction and at each step of the way the approval of the administration must be obtained before the interest can, in any way, be dealt with. To the detriment of the citizens, administrators under a civil regime have no authority or ability to vary the language of the code. Additionally, there is little flexibility to adapt or recover from missed filings or other administrative requirements. Moreover, in most civil law systems one can not mortgage, pledge, assign, charge, convey, joint venture or permit any other party to have an interest in the mineral rights without the consent of the administrators of the mineral regime. Needless to say, this creates a roadblock to developing most properties and results in dead capital.
Simply put, most of the undiscovered major mineral deposits of the world are in civil law countries while most of the wealth and financing available to develop these properties is in common law regimes.
3. Current Regulatory Regime
High reporting standards are essential in developing and sustaining a strong and confident capital market. Investor confidence is equally essential if a company is to be successful in raising capital. Accordingly, there have been a number of initiatives over the last few years aimed at achieving this goal.
[Page 15B-5]
In 1999 the Mining Standards Task Force ("MSTF'), a joint committee sponsored by the TSE and OSC, released a report with recommendations aimed at enhancing investor protection and reinforcing Canada's leadership position and expertise in both the exploration and mining industries, and the financing of those industries. The report made 66 specific recommendations relating to the raising of mining standards in Canada. The report also contained suggested best practice and reporting guidelines and recommended that industry develop its own national best practices and exploration guidelines (which they have done). History will show the MSTF report as being a water-shed report for the future development of higher standards for the Canadian mineral industry and public disclosure of information relating to mineral exploration and development projects.
The report resulted in a significant number of regulatory developments. The most important developments relate to: (i) the establishment by the Canadian Institute of Mining and Metallurgy ("CM") of internationally accepted resource/reserve classification system with a bright line test to go from resources to reserves with internationally accepted definitions; (ii) the formation of a CIM Committee to study mineral project valuations (the CIMVal Committee); (iii) the establishment of a Securities Industry Committee on Analysts Standards to examine the standards of supervision or research analysts' activities, as well as to establish industry standards...
To continue reading
Request your trial