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Don Mosher, a business consultant with B&D Capital in Vancouver, is sounding the alarm. The TSX Venture Exchange, a once-thriving exchange for junior mining companies, is struggling. Its strife is a symptom of the overregulation that is slowly killing a whole sector of the Canadian economy, forcing mining companies and their servicers out of business or to move overseas. But the death knell hasn’t sounded yet, Mosher tells The Gold Report. He believes the Venture Exchange and mining in Canada can be saved, and he outlines his plan here.
The Gold Report: Don, you believe that Canada’s TSX Venture Exchange, where most of the world’s junior mining equities raise cash, is in crisis. Your concern stems from overregulation and market inefficiencies. Can you give us an example to illustrate your point?
Don Mosher: Take a capital pool company or even a junior initial public offering. It might raise from $200,000 ($200K) to $1 million ($1M), but about 40% of that goes to regulators, attorneys and accountants before it even gets a listing. The chances of success are very small when a company has to use that amount of capital right out of the gate, just to get a listing in place.
TGR: If it’s that prohibitive, why are there 1,673 junior mining companies listed on the TSX Venture?
DM: Over the last 12 years, with the real rise in commodity prices, investors started to pour money back into a resource sector that had been in maintenance mode. The money started to come back in and, as a result, we’ve got 1,600+ listings. I promise you, it will be a different number in a year, and it certainly won’t be going up.
TGR: If the TSX Venture is in crisis, how do we know the patient is ill?
DM: A strong indicator is that the exchange did away with the $0.05 minimum for financing. It allows companies to do $0.01 financings. What on earth can you raise at a penny? What’s that going to do for the shareholders? The dilution on that is off the charts.
TGR: We’ve had downturns in this segment of the market before and it’s always come back. What’s different this time?
DM: This time it isn’t due to low commodity prices or demand. Instead, there are regulatory barriers to investors, and escalating costs, that startups simply can’t afford. Also, other regulations are making things more difficult. There’s a regulation coming into effect on March 26 that will force brokers to take a look at becoming asset gatherers, as opposed to speculating.
With the regulations and liability being forced upon the brokers, I can foresee the extinction of the independent brokers—Haywood Securities, PI Financial, Leede Financial, Jordan Capital Markets, Toll Cross Securities, Byron Capital Markets—because they’re not built to be asset gatherers. They’re not built to be in competition with the big banks. The investors who do want to play the Venture market are going to get forced into the discount houses, where there is no expertise to encourage or help them.
If these brokers can’t reach out to retail, which has been killed off due to commission tampering and the piling on of regulations, they’re left with the funds. Let’s face it: There are only so many funds out there. Everybody’s feeding out of the same trough and there’s less and less to eat.
TGR: Are you worried about crying wolf?
DM: I hope I’m completely wrong, but I’ve been doing a lot of research, and in working with the Venture Financial Crisis Committee, significant problems have been identified. Regulators still think that most fraud occurs within small-cap ventures, but society needs to encourage prudent risk-taking and entrepreneurs. Fraudsters need to be dealt with by regulators and the criminal justice system, not through regulation.
TGR: Where does the retail investor fit into all of this? Is the retail investor the forgotten player?
DM: The retail investor is in real trouble. Look at the attendees of any mining conference. They are mostly people around 60 or 70 years old. New regulations being implemented by the Investment Industry Regulatory Organization of Canada (IIROC) are pushing toward an age limit on Venture investing. If you’re over 65, you’re asset-gathering broker is going to be very reluctant to allow you to participate. You’re going to have to go to a discount house. And the young people have a difficult time getting started because they are not yet accredited investors, and consequently are blocked from participating in private placements (buying a block of shares at a discount with a warrant).
For the rest of this interview, please go to The Gold Report website: http://www.theaureport.com/pub/na/15103