Toronto Exchanges Remain Allies of Mining Juniors in MexicoWed, 10/16/2019 - 18:02
Q: What are the main financing trends impacting the mining industry and how is the TMX Group responding to these?
RP: I think the mining industry has some work to do in terms of regaining the faith of investors. It has been a challenging period for the industry and I think one of the major trends is a great deal of activity on TSX Venture Exchange (TSXV). This indicates many exploration-level listings, which is essentially a return of risk capital. We have seen over 40 mining companies go public in the last year. But I think we are seeing challenges in the larger financing deals for the mining sector. The biggest hurdle is returning trust to the sector and for the sector to prove how it will grow and return capital to shareholders.
LA: I think it is fair to say that companies have been able to find financing, albeit in smaller amounts and on the TSXV side. I agree that there must be a return of confidence to the sector but I believe it is already coming back, although slowly. Last year we saw it ebb and flow and, although it feels like a quiet period right now, we have yet to see how the market will settle.
I think the industry has had to make a concerted effort to prove to investors that it is becoming more optimized and productive given that it lost access to many of the pools of capital it used to have. Having re-examined their business plans, some have pivoted and some have stayed the course. But getting that confidence back takes time and as commodity prices bounce back, we will also see confidence returning.
Q: Given the global geopolitical volatility, what steps can be taken to mitigate losses?
LA: We have been living through a downcycle in the last seven years. After the commodities supercycle that lasted 12-13 years, we have had to pivot as any other business would. In cycles like this, we need to pay more attention to other sectors. Although we are still fully dedicated to resources and energy, we have looked a lot at technology and innovation. Much of what we do is global, so many of our opportunities are taking place outside Canada. We are not only diversifying industries but we are also diversifying in terms of the jurisdictions where we reach out to attract listings.
Q: What value does the TSX and TSXV offer to miners, particularly compared to other exchanges?
LA: Toronto is known for its strength in resources because the community understands mining companies in Canada. Whether a banker, lawyer or a retail investor, the ecosystem is conducive to supporting mining. There is no problem accessing capital because the community understands the dynamics and the risk involved. There is a strong part of our retail ecosystem that is very specific to Canada, whereby it is common for people to hold personal trading accounts and make investments in securities. We are known as a pre-eminent global mining exchange with over 50 percent of the world’s mining companies listed with us. Close to 40 percent of all equity capital raised in mining globally happens on our markets. The virtues of our exchanges and unique two-tiered ecosystem are evident to those looking to enter the space and raise capital.
RP: National Instrument (NI) 43-101 is a Canadian mineral resource classification and it allows companies to get the best possible valuation for their business. We allow investors to compare one mining company to others through this instrument, and this allows companies to get the best possible valuation for their assets, both in the ground and in production.
LA: The differentiator with NI 43-101 is that it allows companies to market a property based on inferred resources. That is somewhat unique to our market and helps drive valuations in mining. If you can get the best valuation for your property, that makes it the natural place to raise capital.
Q: What strategies can miners implement to ensure success on the TSX and TSXV?
RP: I think the management team is always important. With constraints on capital, I think investors are looking for the best possible management teams developing projects efficiently. There are many other factors to consider, including the size, the mineral, the connectivity and the infrastructure, but I think investors are much more likely to back projects that have credible management teams with a successful track record.
There are over 900 mining companies listed on TSXV so it is achievable for companies. Having said that, there are two requirements for listing on TSX or TSXV that may be unique. The first is the company must have a current NI 43-101 report but there are many people who can help prepare those. The other requirement to go public is having audited financials.
Q: How do you see mining financing evolving over the next few years and how do you plan to remain relevant as an exchange?
RP: The investor base around mining is aging so we are focusing on trying to attract new investors to the market. There are two examples of how we are addressing this. First, we are spending a great deal of time in Europe trying to target investors there in partnership with Canadian banks and other institutions. Second, the SEV initiative is an example of testing a model that provides access to a whole new set of investors to invest in these companies and participate in the mining sector.
LA: My hope and expectation is that we see much more mining financing taking place. We are expecting a resurgence in the sector as commodity prices have come back and, as the market recovers, we expect to see more financing, both through traditional and new methods. We anticipate the pickup will continue and perhaps recover to levels seen in 2007. In terms of us staying relevant, we need to make sure our value proposition still stands and we are offering what companies are looking for, which is access to capital. This means we need to continue ensuring our rules are relevant, that we are not over-burdening companies with over-governance, ensuring access to capital and continuing to work on our relationships with new and existing customers. I think increasing pools of capital is probably the single most important thing we can do as an exchange to remain relevant. I believe the strength we have in the mining space will carry us for a while.
Q: What lessons can the BMV learn from the TSX to attract more mining companies?
LA: If you look at the five or six mining companies listed on the local exchange here, they have a very large, US$50-100 billion market cap. We have US$30-40 billion-dollar market cap companies too but our strength lies in small to midcap companies. We are almost chasing a different type of company and it is the uniqueness of Canada that allows us to do business with companies as small as US$3 million in market cap up to US$40 billion. That does not exist outside Canada.
Q: Why did the TSXV choose to partner with the Santiago Stock Exchange Venture (SEV)?
RP: I think the genesis of the SEV was that it was looking closely at the Chilean economy, a huge proportion of which is based on mining and there were few public mining companies. Having looked at the TSXV model for funding, it deferred to TSXV at the securities level. This means that if a company wants to go public on the SEV, it is reviewed by the TSXV staff and then it can start trading on both exchanges at the same time. While it may not be natural for someone in Chile to go to TSXV to buy stock, they can now buy in their own market, in their own currency and still have access to the benefits brought by TSXV. This shows a very long-term commitment by the government to build this platform.