Ned Goodman and Thomas Caldwell invest in TSX Venture competitor
The dire predictions that hundreds of junior miners would be delisted from the TSX Venture Exchange this year have turned out to be dead wrong, despite the continuing downturn in the sector, which began in 2011.
Of the more than 2,000 companies listed on the Venture Exchange, only 20 have been “involuntarily delisted” this year, says the exchange’s president, John McCoach.
“The number doesn’t really change a lot in good markets and bad markets,” he said, adding that the prediction of “hundreds” was based on assumptions that juniors low on capital would not access financing or reduce costs. But penny pinching may only have delayed the inevitable for some companies, says Quinton Hennigh, president and CEO of Novo Resources (NVO-C).
“I think 2014 is going to be the critical year, personally,” says Hennigh, who is also a geologist and a contributor to Brent Cook’s popular Exploration Insights newsletter. “I talk to a lot of people and I know the state of a lot of these junior companies, and they are hurting now. There are going to be a lot of companies that don’t make their filings and we’re going to see some of them disappear.”
There’s another alternative that Dundee Corp.’s Ned Goodman and Caldwell Financial founder Thomas Caldwell would like struggling juniors to consider: listing on the CNSX, an exchange in which both financial industry heavyweights have recently invested.
“There’s supposedly 2,000 listed juniors on the Toronto Venture Exchange,” said Goodman on a recent appearance on BNN, when he was asked about the rough shape of the junior mining sector. “If I have my way, they’re all going to fall off the map and they’re going to go to a different exchange. Will they do better on that exchange? They will have an easier time to do better.”
Recently surpassing 200 listings, the CNSX, which has been a recognized stock exchange since 2004, has less than a tenth of the 2,150 listings on the TSX Venture Exchange.
But both Goodman and Caldwell have been aggressively promoting the CNSX and leading a revamp of the exchange, to make it more competitive with the Venture.
Caldwell’s Urbana Corp. (URB.A-T) bought a 49% stake in the CNSX at the end of 2012, with Caldwell joining the CNSX board as chairman.
In September, Goodman’s Dundee Corp. acquired a third of the exchange under terms that were not disclosed and Goodman joined the CNSX board as deputy chairman. Urbana retains a third of the exchange, as do the CNSX’s previous shareholders.
“The reason we bought in is we like the exchange business and there’s a tremendous opportunity in Canada, even though Venture and particularly mining companies are having a very difficult time and the companies that finance them are having a difficult time,” said Caldwell, an expert in capital markets and a seasoned investor in stock exchanges.
“So it’s cost-effective and it’s time-effective. I think that’s a big hole in Canada’s capital market structure – we’re absolutely strangling new entrants.”
With junior miners – who make up the majority of the companies listed on the Venture – continuing to struggle to raise money, the CNSX could find a receptive audience.
The CNSX charges a flat initial listing fee of $12,500 but since mid-July has offered a reduced fee of $5,000 for a 60% discount to companies that switch to the CNSX from another exchange in Canada. (The offer expires Dec. 6). It charges a $500 flat monthly filing fee.
Listing on the TSX Venture can cost between $7,500 (for non-trading companies) and $40,000, with monthly fees of $750, plus filing fees. The Venture also takes 0.5% of any financings under $6 million.
Hennigh, whose company is listed on the CNSX, says he was considering switching to the Venture Exchange about a year and a half ago, but the meltdown in the mining industry made him reconsider.
“Every time I thought, ‘Let’s make the move,” I stepped back and looked at the CNSX and I said ‘Well, we’re spending a lot less money,’” Hennigh says. “Probably 40% or 50% less on a yearly basis.”
Hennigh says some of Novo’s shareholders urged him to make the move, arguing that trading volumes are lower on the exchange than on the TSX Venture board, and because of the perception that the exchange is second-best to the more established Venture Exchange.
But even through Novo, which is earning a 70% stake in two gold properties in Australia, is in good financial shape compared to the majority of juniors (the company had $8.3 million in its treasury in September and has attracted Newmont Mining [TSX: NMC; NYSE: NEM] as a major shareholder), he’s not sure there’s really an advantage to switching to the Venture exchange.
“You’re dealing with the same fundamental regulators, the cost is lot cheaper (on the CNSX) and we’ve demonstrated that the volumes are similar,” he says, adding that Novo’s trading volumes are higher than a lot of TSX Venture-listed juniors. “So I’m not itching to move at this point.”
CNSX vs. TSXV
Part of the reason the CNSX is less expensive is because it was developed in and for the Internet age of online trading and easy access to company information. The exchange tries to keep regulatory layers to a minimum says exchange president Richard Carleton.
“The philosophy was we were really not in a position to be second-guessing or reviewing management’s business judgment,” he says. “We believe passionately that that’s something the market should be doing, not exchange personnel.”
On a practical basis, that means the CNSX does not employ geologists, accountants or other professionals to pore over filings and OK them, as the Venture does.
Hennigh describes the filings as “less of a headache,” but not less rigorous than TSX Venture filings.
“(The CNSX) is a far more efficient and cost-effective, and customer friendly way of raising money in the public markets,” says Caldwell, an expert in capital markets and a seasoned investor in stock exchanges. “It’s a lot cheaper to get on the CNSX and it’s a lot cheaper to stay on it.”
For the record, Caldwell says it’s as little as a third of the cost of listing and staying on the TSXV.
“And it’s not only cost structure, it’s attitudinal,” he adds. “We see these people as our customers, we don’t see it as doing them a favour.”
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