Juniors cope with new Nasdaq listing requirements

The idea that bigger is better is putting the pinch on junior mining companies in the U.S., as the National Association of Securities Dealers (NASD) implements plans to toughen listing requirements on its automated quotation (Nasdaq) trading system.

Many juniors, Canadian and American alike, have been put on notice that tougher listing requirements could relegate them to the over-the-counter (OTC) market.

As of Feb. 23, the NASD required that the bid price of all companies listed on either the National Market or the Small Cap Market must be at least US$1 in order to remain listed.

If a stock falls below US$1 for 30 consecutive days, it must close above that mark for 10 consecutive days during the following 90 days or it is delisted.

If that happens, the company is bumped down to the OTC market, the realm of the electronic bulletin boards, pink sheets, sporadic trading and little visibility.

The NASD justifies this change “to provide a safeguard against certain market activity associated with low-priced securities and to enhance the credibility of the market.”

Nevertheless, many small gold explorers are crying foul, claiming it unfair to punish a company while gold sits near an 18-year low.

These companies dislike the OTC for various reasons, but chiefly because share prices on the OTC are updated only once a day. As a result, shareholders, particularly those who go through discount brokers, may not get the most competitive price for the issue. In addition, much lower or higher prices might be available for the stock if it is traded on the Canadian Dealing Network (CDN) or on Canadian exchanges. This makes arbitrage, the practice of buying on one exchange and reselling on another at a higher price, possible for traders with access to exchanges in both Canada and the U.S.

Scott Smith, president of Salt Lake City-based Gold Standard, called the situation “horrible,” saying “the NASD is taking small businesses out of the equity market.”

Last year, the company tried to get a Canadian listing for its subsidiary, Big Pony Gold, to save it from the poor liquidity of the bulletin board. Red tape and the financial crunch after the Bre-X Minerals debacle ended any hopes of a listing north of the border, and now Big Pony rarely trades at all. Smith doesn’t want to see the same thing happen with Gold Standard.

During the last half of 1997, Gold Standard tried to stir up investor interest with what looked like positive drill results on a Brazilian property. However, further drilling came up empty.

With only 18.7 million shares outstanding and a share price of about US50cents, the company has announced a 4-to-1 reverse stock split effective April 1. Its board now includes two independent directors, and an audit committee composed of a majority of independent directors was created to comply with NASD’s new requirements.

In the case of Consolidated Nevada Goldfields, a share price around US15cents and more than 300 million shares fully diluted (including warrants and a convertible debenture) have the company examining the possibility of a share rollback.

President Alex Bissett said that Consolidated Nevada, like many other companies, complies with all NASD requirements except the minimum share price.

Consolidated Nevada has a small advantage over other juniors, however, because nearly 50% of its trading volume takes place in Europe, and more than half of the remaining trades are on the Toronto Stock Exchange. As a result, the company doesn’t need its Nasdaq listing as much as some other companies.

At Vancouver-based Cusac Gold Mines, 80% of trading volume takes place in the U.S., most of it among small-time investors.

“They are mom-and-pop type investors who want to own part of a gold company,” said Vice-President David Brett.

But Brett said his company will fight a switch to the OTC market. “We’ve been listed on Nasdaq for 30 years, and will use the appeal process as much as possible.”

Cusac is currently trading around US20cents per share.

Brush Creek Mining & Development, which stands at about US50cents, has not planned any rollbacks; it expects to rely on positive news in the marketplace to keep its share price above US$1. The company plans to implement a public awareness program to tell investors about the high-grade mineralization encountered within its Lower Brush Creek mine in the Motherlode district of California, said spokesman Lionel Gosselin.

The scramble to maintain pricing has companies such as Cusac using Internet web sites to spark investor interest.

“It’s doing well for us,” Brett said of Cusac’s site. “We are getting a lot of hits lately.”

More and more companies are getting web sites and finding other ways to use the Internet for promotion, such as links with related sites. But while use of the World Wide Web is an inexpensive promotional strategy, its effectiveness in lifting sagging stocks has yet to be proved.

Cusac also direct-mails releases and information to its shareholders, but postage costs can be high for a small, but widely held, company.

Gold Standard uses direct mailing, but it has also set up a toll-free hotline to get company information to investors.

The dismal metal market has also affected companies listed on other American exchanges besides Nasdaq. Last August, Denver-based Atlas was pulled from the New York Stock Exchange because it could no longer meet listing requirements; it now trades on the OTC market. And both Pegasus Gold and Dakota Mines lost their listing on the American Stock Exchange, though each retains a listing in Canada. Dakota is looking to secure a listing on a U.S. exchange.