USE OF STOCK MARKETS AND VENTURE FUNDS TO FINANCE MINING PROJECTS
| Jurisdiction | Derecho Internacional |
(Apr 2005)
USE OF STOCK MARKETS AND VENTURE FUNDS TO FINANCE MINING PROJECTS
Benjamin Lee
Fasken Martineau DuMoulin LLP
Toronto, Ontario, Canada
Gregory Ho Yuen is a Partner in the Global Mining Group of Fasken Martineau DuMoulin LLP, Toronto, Canada. His experience includes advising Canadian and international clients on equity offerings, stock exchange listings, mergers and acquisitions and other business combinations. During the past two years, Gregory has advised companies and investment dealers in connection with various public and private placement financings totalling more than US$ 400 million. In January 2004, he advised the vendors on the sale of the Amapari Gold Project in Brazil for approximately US$100 million. In August 2003, he advised Rio Algom on the sale of its interest in the Alumbrera Mine in Argentina for approximately US$180 million.
Gregory earned his B.S.F.S. from Georgetown University (1988) and his LLB and MBA degrees (1992) from Dalhousie University.
Gregory is a director of the Prospectors and Developers Association of Canada and is Co-Chair of its Securities Committee.
PART I - The Canadian Experience
Combined, Canada's Toronto Stock Exchange (the "TSX") and TSX Venture Exchange (the "TSX-V") rank sixth among the world's leading stock exchanges in terms of total market capitalization. With a population of only 30 million, Canada is a relatively small player when compared to financial markets such as New York, London or Tokyo. However, Canada has established a niche in the mining sector where it has enjoyed unparalleled success.
The TSX offers its mining companies visibility, comprehensive and specialized coverage and liquidity. Over 50% of the world's listed mining companies are listed on the TSX and the TSX-V providing these companies with the largest peer group among any of the world's exchanges. Remarkably, companies listed on the TSX operate over three-quarters of the mines located outside of Canada. In the year 2003, 113 analysts covered these mining companies generating 586 reports. This exposure has led to strong liquidity in the secondary markets where in the same year over 16 billion mining shares traded on the TSX valued at $78 billion. The growth of the mining markets in Canada has attracted many foreign mining companies to list on the TSX and TSX-V as approximately 30% of the listed companies are based abroad. In the year 2002, there were 1,515 equity mining financings on the TSX and TSX-V in comparison to only 90 on the London Stock Exchange/AIM and only 10 on the New York Stock Exchange. In the year 2003, mining companies listed on the TSX raised over $3 billion while mining companies listed on the TSX-V raised over $978 million. As of December 2003, mining companies listed on the TSX and the TSX-V had a combined aggregate market capitalization of US $113 billion.
As the mining markets have grown and become more complex in Canada, a regulatory framework has developed in response to the various challenges confronted by this sector. This paper sets out two predominant features of this regulatory framework that has helped transform Canada into the world centre for mining finance. These features include: (1) the recognition of Canadian securities regulators for the need to strike the proper balance between providing effective oversight over market participants with providing cost-effective access to capital; and (2) the recognition by regulators for the need to foster the development of junior mining companies in developing and sustaining the mining sector. However there are some features of the Canadian regulatory system that should not be replicated by emerging markets. These features include: (1) an overly restrictive corporate governance regime; (2) a new civil liability regime that may be overly burdensome to public companies; and (3) a regulatory framework with too many regulators.
Striking the Right Balance
Securities regulators in Canada recognize the need to balance effective oversight over market participants with the need to provide companies with access to capital on a cost-effective basis. On one hand, where there is insufficient and/or ineffective regulatory oversight, investors will be reluctant to invest in a marketplace where they feel that their rights and privileges will not be adequately protected. On the other hand, where regulatory oversight is overly intrusive and costly to companies it will present a severe impediment for companies seeking public capital.
A recent example of how Canadian securities regulators have sought to achieve this...
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