The VSE: Canada’s ‘mining venture exchange’

The Vancouver Stock Exchange in recent years has built an image of diversity, increasing the percentage of its junior industrial and high technology listings to almost 35%, even while it was significantly strengthening the standards of the junior resource listings that have been the vse mainstay since its inception in 1907. “Mining development and exploration companies,” says vse President Donald Hudson, “are still the major activity on the vse, despite important oil and gas development a decade ago, and more recently in the non-resource areas. Of our 10 most actively traded stocks in any given month, seven or eight are junior mining stocks. I don’t believe we’re unrealistic in laying claim to being the Canadian Mining Venture Exchange.”

The vse is a proven trading and financing alternative for small or start-up mining ventures. Typical exchange underwritings, judging by this year’s “initial distributions” (a streamlined listing procedure whereby a company does its first public stock distribution through the vse simultaneous with the issuance of its prospectus) ranged from $150,000 to $500,000 for mineral exploration programs. Initial distribution offerings have totalled nearly $27 million this year with 65 companies taking advantage of this financing vehicle.

The vse also offers the facility of smf financings (involving the filing of Statement of Material Fact, a “mini prospectus” qualifying financings of listed companies, through vse facilities). A typical 1987 smf offering would net the issuer from $250,000 to $1 million. Seventy smf financings have raised more than $42 million for Vancouver-listed companies so far this year.

The modest size of the average vse underwriting may be misleading: the exchange has the capacity to handle much larger financings as well. There were 31 major financings (in excess of $3 million) in 1986, two-thirds for mining ventures and the largest of which was that of Eastmaque Gold Mines, in the amount of $24 million.

The 1986 financing total of $705 milion was a record; 1987 funding figures are already 84% of last year’s cumulative totals.

When the vse first opened its doors in a store-front location, there were more horses than horseless carriages out front on Vancouver’s West Pender St. In the intervening 80 years, the vse has gradually developed the capacity to participate in major discoveries.

In fact, the real service the vse has provided for junior mining companies has been to make available the expertise and infrastructures that have grown from decades of experience in this highly specialized genre.

Mr Hudson believes that the vse’s impressive development during the past five years has been created to a great degree by the growth of this effective infrastructure made up of highly capable professionals within the exchange and its members, as well as legal, accounting, engineering and analytical specialists in the Vancouver securities community.

The vse listing department alone is staffed by 31 people, 10 of them listing officers, who deal closely with the resource juniors. As a further service to listed companies, in late 1985 the exchange developed and published a comprehensive listings policies and procedures manual, written in twice a year.

Vse application, filing and approval procedures and forms are designed to reduce paperwork, decrease costs and shorten processing time for junior e issuers.

As evidence of the vse’s success, in almost every location where quality exploration and development have recently taken place — at Ontario’s Hemlo and Quebec’s Casa Berardi, in Saskatchewan’s La Ronge play, in California’s Mother Lode, in Nevada, Colorado and Washington’s Wenatchee, and closer at hand in B.C. — the major players have been vse-listed and -funded companies.

In fact, the vse’s junior financing capability is such that of all resource funding done in Vancouver, approximately 70% of all the proceeds are for projects outside B.C., including eastern Canada, the U.S. and overseas.

And the broad sourcing of vse financing is equally significant. During 1986, for example, private placement funding was “sourced” as follows: 33% from western Canada, 27% from eastern Canada, 9% from the U.S., 25% from western Europe and 6% from other countries.

“We are not obviously some kind of regional exchange,” Mr Hudson says.

These statistics illustrate that the vse has developed increasingly sophisticated markets, while diversifying its list and improving the quality of its listings. One indicator of this is the volume of private placements, a financing mechanism used extensively and increasingly by junior resource companies.

In the first four months of 1987, 471 private placements worth more than $268 million were the major share of the exchange’s total financings of slightly more than $337 million.

The vse’s greatest achievement has been to create a unique stock- in-trade venture capital financing which is not available in quite the same way elsewhere in the world.

Just how that has been accomplished is best illustrated by looking at the main stimuli that in recent years have combined to drive the phenomenal growth of the vse’s volume and dollar value (among resource issues), in the upgrading of its listings and the diversification of its 2,000 stocks.

The vse’s dollar value is still well below that of the other major Canadian markets, which primarily reflects the lower average cost of the vse’s stocks. But when it’s sunny in Vancouver and raining in Toronto, occasionally the vse shows the second highest volume in North America. And during the last complete year, it traded 3.5 billion shares worth $4.5 billion.

The five major developments that have fueled the vse’s resource strength recently are (1) the rising price of precious metals, particularly gold (2) a corresponding improvement in gold-mining technology, such as heap leaching (3) the rise of the small, profitable operator, from large-scale shallow, low-grade operations to “shovel and wheelbarrow” salvage and tailings operations (4) availability of accelerated financing, and (5) availability of flow-through financing.

“As distinct from the earlier era,” says an active vse broker, “the prototype vse mining stock today has a real chance, with every indication of developing an orebody, if it doesn’t in fact have one at the time of financing.”

Rupert Bullock, former superintendent of brokers, puts it a little more e strongly. “Never mind 20 or 30 years ago,” he says. “Compared with a decade * ago, I’d say the average vse listing today is characterized by good g management, rather than by the promoters of the past. And I’d also suggest a that a good half of all vse listings today have a reasonable expectation of profitability.”

Backing up this statement is the number of vse resource listings now in c production or close to a production decision — almost 200. The vse’slisting specialists work closely with the B.C. Securities Commission and Superintendent of Brokers to ensure satisfactory standards in junior resource issues.

While receipt and approval of prospectuses are the jurisdiction of the government, much of the vetting of the companies and their filings is now shared between the two jurisdictions with the superintendent’s primary intent being the people involved, and the vse closely examining the details of the distribution and financing deals.

“Our operation,” Hudson says, “is uniquely geared to the junior company and its particular characteristics. We don’t apply a watered- down version of rules that were written for senior companies.”

With this philosophy, the exchange continues to attract and accommodate junior companies. New listings totalled 182 in 1986; in the period January-April, 1987, the total was 92, with 60% in the mining field.

The third factor after experienced risk-taking and professional infrastructure is that of widened capital resources.

“Just how much of our volume originated in the U.S. can be gauged by the fact that on any U.S. statutory holiday, our trading will typically drop 20%-25%,” Mr Hudson says. “The vse’s outs
tanding market performance in the past 20 years, with volume, value, listings and financial records set, reiterates the fact that we are still a successful resource-based institution despite the rapid growth of other types of listings.”

This growth is expected to take another quantum leap within the next year with the installation of the exchanges’s vct (Vancouver Computerized Trading) system. Starting in February, 1988, the vse’s “smart terminal” system will be phased in, beginning with development issues, gradually replacing the current system of trading by open outcry.

“It’s not a question of how far ahead or behind the vse will be relative to other exchanges,” says Tony Hepburn, president of Vancouver’s Odlum Brown and past chairman of the vse board of governors. “After the obvious benefits to all concerned — more depth of trading information, faster execution, better quotations — the universal potential of widespread installation of terminals, for example, will contribute to a longterm boost in trading activity, which will mean that the vse will be without equal as a trading venue for venture capital stocks.”

And an even greater benfit will be a full automation program which will produce greater credibility for the risk-oriented vse in the international market place.

What was once simply a junior resource market has broadended its listings base, strengthened its traditional resource expertise and introduced a new stock exchanges, the vse today is a broad venture capital market still focused on a junior mining issues. And, at least in the current market, demonstrating a heart of gold. The Annetts are Vancouver-based freelance journalists. Listing on VSE

— Minimum listing requirements on the vse: (1) management expertise in the company’s chosen field (2) sponsorship by a vse member (3) an acceptable Vancouver transfer agent (4) at least 250,000 free trading shares in the hands of the public (5) compliance with the legislation relative to the company’s incorporation (6) the minimum issue price of first stock sold to public of 30 cents per share (7) minimum proceeds of “seed capital” and first public distribution — $175,000 of which minimum of $100,000 from seed capital shares alone (8) company must have spent a minimum of $60,000on assets (9) a minimum of 150 beneficial shareholders, exclusive of company insiders, and (10) company must have sufficient funds to carry out stated plan, plus an unallocated $30,000

— Typical total cost of going public in Vancouver is $25,000 to $100,000, including initial listing fees (which range from $2,500 to $10,000)