Scarcity of Capital for Mineral Exploration and Development
January 1, 2016
Investment in the mineral exploration and development industry has diminished to the point that many junior companies are unable to generate the capital needed to finance mineral exploration and development projects, or even cover administrative costs to retain their public listing requirements. This means that many of these companies will cease to exist by the end of 2016. Virtually all components of the capital raising and financing process, including equity, venture and private sources, have become scarce over the past several years. And 2016 shows no early signs for a return to improved conditions. Many factors have been cited for the current state of junior mineral exploration financing, including low commodity prices, a stagnant world economy, lack of investor confidence, risk adverse fund managers and banks, government tax policy, and excessive regulation coupled with a lack of responsiveness from securities regulators.
The mineral exploration and development industry is well experienced in commodity pricing swings and the subsequent high and lows in financing. What has changed is that the current downturn is at least partly due to structural issues that are thwarting the capability of the market to create access to capital and support our industry’s entrepreneurs. Organizations including the Venture Capital Market Association, the Prospectors & Developers Association of Canada (PDAC) and AME, in addition to the Financial Post and industry experts, have identified many underlying issues and have been public with their concerns, as well as offering advice as to how to structurally repair the capital raising and financing process. The TSX Venture Exchange (TSXV) has also recognized the challenges of Canada’s public venture market and is taking steps to better understand and correct some of the problems. On January 5, 2016, the TSXV released the following statement:
“TSXV is committed to making a positive, tangible impact in three important areas:
- 1. Meaningfully reduce our clients administrative and compliance costs without compromising investor confidence.
- Expand the base of investors financing companies and generally enhance liquidity.
- Diversify and grow the stock list to increase the attractiveness of the marketplace.”
The TSXV has also released a whitepaper entitled “Revitalizing TSX Venture Exchange.” Additionally, the TSXV has scheduled Town Hall meetings to discuss the above commitments. Please click here to register for the meetings.
In order to repair the capital raising and financing process, the industry will require wide participation from everyone, including the TSXV, the Investment Industry Regulatory Organization of Canada, the provincial Securities Commissions and others. Some of the more direct suggestions to create positive change include:
- removing inactive companies;
- reducing the ability to manipulate the market;
- enabling less oversight and constraint on corporate decision making;
- introducing more standardized reporting rules;
- reducing direct listing costs;
- creating more access to capital through an expansion of crowdfunding and other innovative sources, and
- reducing the level of public company-securities investment bureaucracy that exists in Canada.
What action AME is taking
AME will be providing a submission to the TSXV and will have representation at the Vancouver Town Hall meeting on January 28, 2016. As well, through AME’s Tax, Securities and Investment Committee, we are working with the PDAC to ensure that the federal and provincial governments maintain favourable tax incentives, such as the Canadian Exploration Expense, flow through shares and a relevant application of the Mineral Exploration Tax Credit exemption.
AME will also be discussing this situation during the AME Core Issues Update from 9:00 – 11:00 AM on Tuesday January 26 at Mineral Exploration Roundup 2016.
The TSXV needs to hear from the people that raise capital for junior exploration and development companies because no one knows the problems better than you. The TSXV whitepaper has a number of methods to communicate your concerns and suggestions. Attend the Town Hall meetings if you are able. But above all, make your voice heard and contact the TSXV, AME and BC government.
John McCoach, President & CEO, TSX Venture Exchange – [email protected]
Rick Conte, Executive Vice President, AME – [email protected]
Hon. Bill Bennett, BC Minister of Energy and Mines – [email protected]