TORONTO (Reuters) – Hundreds of small mineral exploration companies may have their stock delisted by Canada’s TSX Venture Exchange in the coming months, choking off a development pipeline that has long supplied major miners with new projects.
As commodity prices boomed in the last decade, a flood of new issuers swelled the ranks of the Venture, TMX Group Inc’s exchange for small-capitalization companies, burnishing Canada’s reputation as the center of global mining finance.
But the money has dried up over the past two years, thanks to a slump in metal prices and a spike in costs. Hardest hit are the Venture-listed, exploration-stage companies that depend on equity financing to develop their properties to the point where they can build a mine or sell the asset to a major.
“There’s a crisis that’s looming,” said Joe Groia, a securities lawyer and former head of enforcement at Canada’s top securities regulator, the Ontario Securities Commission. “If we continue to not address it, what we’re going to end up with is literally hundreds of companies where boards are either going to walk away or hundreds of companies that are going to run out of money.”
The disappearance of a large number of small companies would affect the global mining sector for years, given that it is juniors that typically find world-class assets that big players later build into producing mines.
It can take years to estimate the value of a mineral asset, plan a mine and start the permitting process, and it is neither quick nor simple to resume work on a mothballed early-stage project.
And while the mining sector has always been subject to boom and bust, the potential shake-out could be especially damaging this time. A dearth of companies with proven assets could hit future supply of many different resources and drive up prices.
MOST OF WORLD’S PUBLIC MINERS
Canada’s financial market affects the mining sector around the world, because the Venture and the main Toronto Stock Exchange are home to nearly 60 percent of all public mining companies. The two exchanges accounted for 40 percent of all equity financings in the industry between 2008 and 2012, and 70 percent of the equity capital raised in the sector in 2012.
Nearly half the projects owned by the roughly 1,700 miners listed in Canada are located overseas, so the funding crunch is already curbing investment around the world.
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Thu Jul 25, 2013