Commentary: Mining the Canadian markets

With nearly 1,650 companies listed, mining is one of the Toronto Stock Exchange’s most important sectors. The TSX and the TSX Venture exchange are currently home to more than half of the world’s public mining companies, as Canada continues to be the leading capital market for such companies worldwide.

Companies based in Asia, Africa, Europe, Latin America, Australia and the U.S. are all drawn to Canada’s robust markets for a number of reasons. Likewise, investors are equally attracted to the compelling opportunities afforded by global mining companies with burgeoning potential.

While the attraction is clearly mutual, this means there is increasing competition among mining companies and projects for investor dollars. Investors are becoming more sophisticated, and both the listing and capital-raising processes are becoming more rigorous.

Foreign mining companies considering going public on a Canadian exchange are well advised to do their homework—and do it thoroughly—before taking the plunge.

Going public is a milestone, and undoubtedly one of the most exciting decisions a company can make. It is also one of the most complex and, potentially, one of the most costly undertakings.

Before taking a company public, careful thought must be given to the reasons for wanting to go public, the objectives hoped to be achieved, and the best market in which to achieve them. Mining companies have numerous motivations to go public, and raising capital is often chief among them.

Large amounts of capital are required in order to develop, extract and process resources, and build an internationally competitive mining operation. Going public provides access to capital markets and may help a company grow and pursue long-term business objectives by opening up opportunities that may have previously been limited under existing capital resources.

It can also provide liquidity and capability to act quickly when the right acquisition target comes along, increase your exposure and prestige in the global marketplace and even help you attract and retain key talent as your company grows.

The other side of the beneficial exposure is that a company becomes exposed to the public in every sense. To an extent, the executive cedes some of their autonomy by having a larger group of people involved in operations and governance, and by being subject to changes in their governance structure and to the pressures of ongoing reporting requirements.

Full and transparent disclosure is required, and as the companies becomes accountable to their shareholders, they will be expected to justify and explain their decisions and behaviour.

This increased responsibility and scrutiny presents a challenge, particularly at the outset, but it need not be seen as a burden. In fact, it can present a golden opportunity to build important financial discipline, structure and culture of accountability into the company’s operations. Going forward, this can actually be a significant advantage once all of the processes and systems are in place.

With access to sophisticated and motivated investors, a stable political system and a multitude of highly skilled and experienced advisors who specialize in advising mining companies, Canada provides an attractive ecosystem for mining companies from all over the world looking to go public.

For three years in a row, Canada has been ranked by the World Economic Forum as having the world’s soundest banking system. It also has the lowest debt-to-GDP ratio among the G7 and a strong equity culture.

Additionally, Canada has excellent political and business relationships with key mining nations and has an abundance of advisors and technical experts who are well versed in navigating the laws, processes and regulations of various local and international bodies.

Listing in Canada also affords access to not just Canadian capital, but to North American capital on the whole, and can serve as a springboard for listing on a U.S. exchange.

Canada has also proven itself as an excellent breeding ground for junior mining companies in their early stages—with considerable opportunities for growth and expansion. 

One of the key considerations when you want to take a company public in Canada is to assemble the right team. Companies must have the right management, the right board and the right advisors in place — at the right time.

Because you’ll also be busy handling your day-to-day operations during the process, it’s extremely important to enlist the right people for support. The team you build will prove invaluable as you work through the lengthy process, whether via a direct initial public offering or reverse takeover of a public shell (capital pool) company.

The right management team helps execute the strategic plan and ensure compliance with all requirements, both in the country of origin and in Canada. This team should be deeply knowledgeable of local laws and regulations to ensure compliance and avoid errors or missteps that might compromise the process.

The board should have a broad range of expertise to bring diverse and objective perspectives to the table and add value for shareholders. Likewise, your team of public companies advisors should be broadly experienced with particular expertise in taking similar companies in the mining sector public.

— Murad Bhimani, CA, CPA (TX), MBA, is a member of MNP’s Public Companies team based in Toronto (see www.mnp.ca). Working with entrepreneurial public companies and companies considering going public in Canada or in the U.S., he delivers value-added assurance and consulting services. He can be reached at tel. 1-416-515-3880 or murad.bhimani@mnp.ca.