Public Financing As A Source Of Funding For The Canadian Mineral Industry

INTRODUCTION Financing, or providing adequate capital at low cost for developing and bringing a natural resource property into production, is a fundamental requirement for profitable operation. Under the present economic environment the cost of financing any project is gaining more importance than ever. The fundamental keys for success in mining are "the Four M's": Mineral, Market, Management and Money. In recent years, with capital and operating costs skyrocketing, increased emphasis on obtaining adequate and low cost capital funds for bringing in a prospect is essential. For a small mining company there are limited sources for raising funds. In most cases these companies have neither a substantial asset base, nor any cash flow, and they are deemed as risky investments. The issue of shares of capital stock of such a company is probably the most common method of raising funds via the public purse. Alternatively, debt could be used and a source of such capital might be private investors or financial institutions. The company which intends to raise funds from the investing public by way of the sale of equity, subsequently lists those shares for trading on a stock exchange. Going and staying public commits a company to a multitude of complex laws, rules and reporting requirements. The governing bodies are the watch dogs for the public. The largest of such an organization of this kind in the world is the Securities and Exchange Commission (SEC) in the United States. In Canada, the Securities Laws come from within provincial jurisdiction. Most provinces have their own Securities Act, and Securities Commission. It is the Commission which administers the Act, and hence controls the distribution and trading of securities within the province. Extra provincial registration is required for trading and distribution in more than one province. In British Columbia, prior to a public offering, the approval of the Superintendent of Brokers (SOB) and of the VSE must be obtained. THE VANCOUVER AND TORONTO STOCK EXCHANGES There are five stock exchanges in Canada which supply a trading forum in which mining companies may operate. The stock exchanges are located in Montreal, Toronto, Winnipeg, Calgary, and Vancouver. Of the five stock exchanges, the Vancouver Stock Exchange (VSE) and the Toronto Stock Exchange (TSE) are the most heavily used for resource-based issues and are the focus of this paper. The objective of this section is to provide a brief background on the VSE and TSE. The Vancouver Stock Exchange The VSE is Canada's predominant stock exchange for financing resource-based, junior issues. Since 1907, the VSE has acted as a source of funds for mining, exploration and energy companies throughout Canada and the world. Currently, there are over 1400 companies listed on the VSE. During 1983, over 3.1 billion shares traded at a value exceeding CDN$3.96 million. The VSE has developed a reputation as one of the few exchanges where a speculative resource venture may obtain a listing and subsequent financing in a relatively short time, generally five to ten months. The SOB, the Investment Dealer's Association of Canada (IDA), and the VSE all regulate trading at the Exchange. Any irregularities in a company's stock dealings are investigated and trading may be halted by the VSE until a satisfactory explanation has been received from the suspended company. Companies can be suspended from trading or delisted for various reasons. One reason is misrepresentation of facts in documentation submitted to the SOB, VSE, or to the public, through news releases.