TSE raises listing standards — New rules increase asset requirements, size of public float

New listing requirements for mining and mineral exploration companies, announced this week by the Toronto Stock Exchange, have raised the technical and financial bars that a company must clear to gain a TSE listing.

The new standards demand more money in the company’s treasury and the submission of more detailed plans for exploration and production. The requirements also reflect some of the recommendations of the joint Mining Task Force, commissioned by the TSE and the Ontario Securities Commission (OSC) following the Bre-X Minerals fraud, implemented by Michael de Guzman, Jerome Alo and several of their associates.

The TSE put the new listing standards into effect immediately, as an interim measure, but the OSC will examine them and have the final word on approval.

Under the TSE’s previous requirements, promulgated in 1992, exploration companies had to have net tangible assets of $2 million and an acceptable exploration program planned for a “property of merit,” conventionally defined as one for which there is drill-indicated mineralization at potentially economic grades. The new requirements would bring the net asset level up to $3 million and demand that the company have a minimum of $2 million in working capital (current assets less current liabilities).

The new listing standards would require the company to submit a work program with a minimum $750,000 budget, an increase of $250,000 over the existing requirement. The TSE would have to see an 18-month plan showing the sources of exploration funding and the uses that would be made of it; and the member firms sponsoring the listing would be required to examine the plan and review and comment on the company’s exploration agreements and property tenure.

Under the recommendations of the Mining Task Force, tabled in June, the company’s exploration data and its exploration plan must be reviewed and approved by an independent “Qualified Person,” an accredited geologist or engineer with a professional licence.

Producing mining companies would have to show proven minable reserves to sustain production for a minimum of three years, again verified by a Qualified Person, and either be in production or have a positive feasibility study of the project. Enough working capital to begin or maintain production and an 18-month development and production plan are also mandatory.

A producing mining company must have a minimum of $4 million in net tangible assets for a TSE listing.

Any listed mining company, whether an explorer or a producer, would have to have a minimum publicly-held float of 1 million shares, worth $4 million (up from the present $2 million) and distributed among no fewer than 300 shareholders.

The TSE also released proposed guidelines for electronic communications and disclosure by Internet. The guidelines, while applicable to companies in all industries, are in part a response to the effect Internet rumors have had on some speculative stocks, including mining issues. The Mining Task Force touched on the issue in its June report, saying it is an “inherent duty” to correct misleading information in the marketplace, and that exploration and mining companies have a responsibility to monitor the Internet for misleading information.

The TSE refused to accept electronic disclosure as a substitute for the traditional dissemination networks but recommended that listed companies maintain a world wide web information site that would include, at a minimum, the mandatory public filings. Formal disclosure to the market via newswire services remains the standard, as does electronic filing on the securities commissions’ System for Electronic Document Analysis and Retrieval (SEDAR). The guidelines stipulate that newswire services and SEDAR all maintain web sites themselves.

The proposed guidelines require listed companies to revise any outdated information on their web sites and correct any misleading or incomplete information that appears there. They also would prohibit companies from releasing information through the Internet before it is disseminated by a newswire service.

Under the guidelines, companies would also post supplementary information that had been provided to investment analysts and large investors. The TSE argues that making such information available more widely through the Internet will blunt criticism that presentations to analysts and fund managers effectively leak inside information to favored institutions and houses at the expense of retail investors and rival funds and brokers.

Alternatively, the company could make the material available to any interested party by listing the name of an employee responsible for sending materials to investors. Transcripts of conference calls with analysts would also be available.

The TSE also wants Internet information to comply with securities laws. While many Internet-users are of the opinion that anything can and should be said on the system, the TSE’s position is that companies must not post anything related to a securities distribution until it has been filed with, and acknowledged by, the legally responsible securities regulator. The guidelines also caution companies that foreign regulators may regard web postings as solicitations to buy securities that have not been cleared for sale in the foreign jurisdiction.

The guidelines also list several practices that the TSE says should be prohibited. Heading the list is an injunction against employees posting information about their company on Internet news groups, bulletin boards or chat rooms. The TSE also recommends that companies should not post analysts’ reports, except under specified conditions that include regular updates and listing of all other analysts’ reports, so as to provide a balanced picture.

In another recommendation clearly aimed at the Internet hype markets, the TSE says companies should act to correct rumors on the Internet by issuing news releases.