Private placement financings may be opened up to non-accredited investors
With so little money flowing into the beaten-down junior mining sector, Canadian regulators are proposing to loosen the restrictions around private placement financings to allow regular joe investors to participate.
The proposal, which was published for comment on Nov. 21, lays out the case for opening up private placements to retail investors that already own shares in a company listed on the TSX Venture Exchange, subject to a limit of $15,000 per company each year.
The change would help to even out the playing field for small investors, who, at the moment, can only buy shares on the secondary market. Currently, participation in private placement financings are limited to accredited investors – meaning institutions or wealthy or sophisticated individuals.
Private placements, which are priced at a discount to market and often include a sweetener in the form of a warrant, have long been the dominant mode of financing for juniors because they do not require companies to do the expensive and time-consuming work of filing a prospectus.
While small investors will benefit from the proposal (officially called CSA Notice 45-312: Proposed Prospectus Exemption for Distributions to Existing Security Holders), its main aim is to help cash-starved junior mining companies — as evidenced by the timing of the proposal.
John Kaiser, who runs the respected Kaiser Research Online website and newsletter, says the regulators have come to realize that the institutional money has left the sector and brokers are no longer acting as a connector between retail investors and junior companies.
“There’s actually very poor gateway of capital into the treasuries of juniors,” Kaiser says — especially the exploration-oriented companies that have historically been the mainstay of the TSX Venture Exchange.
Comments on the proposal, which was put forward by all the provincial and territorial regulators in Canada with the exception of Ontario, are being accepted until Jan. 20.
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