Protect the [mine financing] cluster [Toronto] – by Janet Ecker (National Post-April 14, 2011)

The National Post is Canada’s second largest national paper. This article was originally published in the Financial Post section on April 14, 2011.

Janet Ecker is president of the Toronto Financial Services Alliance.

The proposed merger of TMX Group and the London Stock Exchange has provoked uncharacteristicallystrong and diverse reactions within the financial community. Those mixed views were clearly displayed during four days of hearings on the deal before the select committee of the Ontario Legislature. How they will judge the strong arguments for and against the deal in their report later this month is anyone’s guess.

Whatever their verdict, and those of the review processes yet to come, we must remember that Toronto is the global leader in mining and metals financing, with TMX playing a significant role. With or without this deal, all sides agree on the need to retain that leadership.

The Toronto exchange (TSX or TSX Venture) lists nearly six in 10 of the world’s publicly listed mining companies, and last year they raised $17.8billion in equity capital -60% of the world’s total for the sector.

This dominance does not simply reflect Canada’s wealth of natural resources. Over the years, Canada’s strong domestic metals and mining sector has built up a core of management and technological expertise, nurturing true international players. Whether global champions, such as Barrick, Goldcorp or Teck Resources, or early-stage prospectors listed on the TSX Venture Exchange, Canadian players have become increasingly global.

Now, nearly 10% of Toronto’s 1,531 mining issuers are international companies, and Toronto-listed companies own more than 5,000 mining properties outside Canada, around the globe.

If we can sustain that leadership, it will be for three reasons.

First, Toronto is home to many of world’s largest and most-respected mining and metals investors -and Toronto’s proximity to the U.S. institutional investor community provides access to many more. As the mining sector has grown, Toronto-based investors have had to build up expertise in this sector to be successful. Toronto’s investor base has become accustomed to investing in smaller, riskier mining ventures, giving them an expertise and comfort level with these types of investments. Consequently, there is a large supply of capital available to invest in mining companies (including, importantly, the junior ventures). The prevalence of the “bought deal” in Toronto (the term for an equity issuance that is bought by the underwriter and then resold to investors) also makes Toronto a favourable place for mining companies to list.

Second, Toronto and Canada have some of the world’s foremost banking, legal and other mining advisors. For example, in the International Who’s Who of Mining Lawyers, Toronto’s Michael Bourassa (of Fasken Martineau) was named “Mining Lawyer of 2010.” Having this wealth of advisory expertise draws issuers to Toronto and helps enable financing innovation, which further strengthens Toronto’s position as a mining financing hub.

The Toronto Financial Services Alliance estimates that 12,000 to 20,000 jobs in Toronto -investment bankers, lawyers, analysts, accountants and other specialists, such as transfer agents, custodians, regulators and investor-relations practitioners -are dependent on TMX’s ability to attract and retain listings and financings. And Ontario’s universities and colleges are continually working to develop innovative programs that will equip students with the unique combination of knowledge and skills required to support the industry.

Third is the presence in Toronto and Canada of a world-class regulatory environment for mining finance. For example, our mining disclosure require-ments, considered the most comprehensive in the world, provide investors great clarity and protection. Yet, Toronto and Canada have also made it much easier for smaller mining companies to access capital. The Capital Pool Company Program and short-form prospectus are Canadian innovations that allow smaller companies to access capital more efficiently.

These three factors work in tandem. An effective regulatory regime encourages investors. A stronger investor base attracts more issuers. The presence of more issuers strengthens the level of banking and legal expertise. The level of specialization encourages innovation, and so on. Mining and metals financing is a true cluster; we must protect and grow all of its elements.

The world economy continues to be driven by a boom in commodities, increasingly by buyers in growing Asian economies. Their increasing wealth needs to be invested. These buyers may seek not only to buy the production but also to secure the supply.
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