Canada is the Centre of Global Mining Finance – by Francis Manns Ph.D., P.Geo. (Artesian Geological Research)

Canada is blessed with precious metals, nickel, copper, lead and zinc, industrial metals and minerals yet somewhat hampered by seasonal exploration and difficult glacial overburden of thick sand and gravel. 
We have learned to explore despite the terrain and climate and our strength comes from the difficulty.  It has not killed us, and has made us expert.
 
Historically we have always had secure title on Crown Land.  This was buffered by the recycling of properties – explore land or lose it – a great practical policy.  Explorers are required to file technical reports for the public record and previous work can be incorporated into new ideas by the next explorer. 

Exploration always seemed to work best when detailed work programs with small budgets are applied to small properties.  Canada also allows a smooth transition from exploration to exploitation which creates investment safety. 

Canada also has good universities built around the British model but more pragmatic.  Geology and engineering students work on real projects, with well-paid summer work in the field and we have attracted grad students to our research facilities from around the globe to University of Toronto, Queens, University of British Columbia, Concordia and all the rest. 

The Canadian mineral industry has a hierarchical industrial architecture whereby major companies that produce metal are typically operated by engineers.  Junior companies explore and are typically operated by geologists.  Our mining companies are very efficient and innovative.  Operating costs are disciplined by global market spot prices.

Senior companies joint venture projects or buy outright the best juniors explorers who have found the best projects. 

Juniors have a spectrum of sizes, are agile, efficiently funded, and generally are able to shift commodities depending on world market demand. 

Both senior operators and junior explorers are supported by expert consultants in engineering, geology and geophysics.  Canadian geophysics and geochemistry lead the world because it has had to overcome the difficulties of exploring the Canadian Shield through the thick overburden. 

Financial and Legal expertise excel in both Toronto and Vancouver.  As the cyclicity of the industry has unfolded many times geologists and engineers went into corporate finance and law.  Financial analysts support 80 Canadian and 17 international brokers with 100 or more mining analysts based in Toronto and Vancouver.  The legal Expertise in Toronto and Vancouver is supported by geologists and engineers who became lawyers during downturns in the industry.
 
A ‘sea change’ occurred at the end of the Cold War.  The end of Soviet foreign aid triggered a symmetrical decline in US western financial support.  Countries that could – e.g., Mexico, Venezuela, many of western and southern African countries, and some of the Latin American countries rewrote (or announced plans to rewrite) foreign investment rules and some rewrote land title law.

Canadian Junior Companies spread around the world because barriers to exploration dropped.  Canadians were there to evaluate undercapitalized mines and informal operations.  We have exported a great deal of Canadian expertise, both technology and people, since that time.

Money became available – more distance, more money, because sometimes the grass is truly greener behind the fence.   Countries that were unwilling to attract foreign investment have not changed – e.g., Russia, China, Venezuela, have been high risk for us.

Through the serious troughs, the Canadian federal government and provinces responded by developing flow-through financing for mining to attract exploration back into Canada.  Bank account interest was/is de minimis; RRSPs became the social norm.

In 1994 the metal markets began to feel the demand from Asia for western metals.  The global consumption of zinc rose from a 1.3% growth trend to 2.7% trend per year.  Copper consumption transitioned sharply from 1.8% growth per year to 3.3%.  In the 1980s, copper was 87¢ and zinc 43¢.  In the 1990s, copper was 99¢ and zinc 51¢; from 2000 to 2002, copper was 75¢ and zinc 42¢.   In 2003, the US industrial machine was at a stagnant 75% capacity. (Yates Mineral Consultants Inc., Presentation of 28 May 2003)

The Bre-X $9B fraud in 1997, the Cartaway mistake, the Golden Rule salting scam and a few others coincided to require some rethinking of the mineral exploration business.  In perspective, these trials were dwarfed by Enron type securities frauds.  Through Enron corporate activities, California suffered a total of thirty-eight Stage 3 rolling blackouts, the cost of which cannot be estimated. 

Following Bre-X, coincidently, metal prices fell across the board, and the mining market was seriously hurt.  Financings for juniors dried up; senior companies hunkered down or merged.  Since the 1960s mining had been a cash flow business, but cash stopped flowing.

In 2000 or so the Canadian capital markets were partly rationalized by demutualising, taking markets public, joining the western markets into the TSX Venture Exchange, and merging the TSX Group.

Contemporaneously the exchanges, industry and the Canadian Securities Administrators (CSA) created a mineral industry disclosure law. The Federal Government dropped the 30% foreign content limit for RRSPs. 
The TSX dropped the requirement for Canadian directors and the requirement for 300 Canadian Board lot shareholders, in favour of NA directors with NA capital market experience, and a minimum of 300 NA shareholders.

SEDAR was created to disclose corporate documents of all Canadian registered Companies. 

National Instrument 43-101, was created by the exchanges and commissions using strong mining industry technical guidance.  …And then the Dot Com bubble erased the tape.  By the time the Crawford Commission (Setting Analyst Standards: Recommendations for the Supervision and Practice of Canadian Securities Industry Analysts) reported in October 2001, Bre-X had been eclipsed but not forgotten.

All NI 43-101 technical reports are posted on SEDAR in perpetuity. 

The effect of the Asian miracle since then has lifted us to across-the-board to unprecedented commodity prices.  The rising tide truly lifted all boats.  With the alphabet soup of financial crises, however, the world has obviously become more volatile.  Going forward, with or without intervention, the invisible hand of the capital markets will make its corrections because the hand is an economic law as inexorable as Newtonian motions. 

Commodities and mining will always leverage prosperity.  There are no shortages of raw material on our comfortable planet.  Just barriers to entry…and economic cycles.

Competitors

London AIM – the Alternative Investment Market of the London Stock Exchange was launched to capitalize on the junior issuer emerging stock market demand for commodities and gold.  The initial success resulted from access to huge pools of European capital.  Companies raised large amounts of capital (and paid large commissions). 

Australian Stock Exchange – has excellent geosciences and favorable resource exposure. There is no technical report requirement (currently evaluating the policy). The exchange tends to have massive dilution – one billion shares are not unusual.

Johannesburg Stock Exchange – has excellent géosciences and favorable resource exposure. Historically, it has been a bastion of large holding companies.

Hong Kong / Shanghai – has no juniors listed because of a requirement for revenue – cash flow upon listing.

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