Canada is the undisputed home of global mining equity capital financing and the country’s two main equity exchanges – Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) – provide the solid foundation from which this home has been fashioned over the last century and a half. The exchanges were built on the geological and financial strengths of Canada and it is for this reason that mining is still deep-rooted in the country’s economic development. “Canada is mining,” says Dean McPherson, head of business development, global mining for TSX and TSXV. “A large part of our economy is driven by the mining sector; so our markets are closely tied to the general economy and I think that level of importance gives us an advantage.”
In 2017, 59% of all global mining financings were undertaken across Toronto’s two boards and over 53 billion mining shares were traded with a total value of C$206 billion. These are just two statistics that reinforce the dominance of TSX and TSXV as a listing and liquidity platform for the mining sector.
In addition, McPherson estimates that TSX and TSXV towers over its nearest competitor – the Australian Stock Exchange – with over 1,200 mining companies listed in Toronto, compared to around 600 miners on the Australian market.
These impressive figures beg the question, why is Toronto such an attractive listing destination for so many companies from the mining sector? “For mining companies, access to capital is often the primary reason to consider going public,” explains McPherson.
“That number one factor is certainly a recurring sell for us and a factor that is noted by our clients as to why they consider Toronto first. The other factor is the environment we have here; in terms of the broader ecosystem, knowledge base of investors and support through all stages of growth.
“Both institutional and retail investors have so much experience in this space, there is a great appetite for risk and understanding of business drivers in different jurisdictions; as well as an appreciation of the growth cycle of a mining company and associated challenges. They are able to interpret these challenges and opportunities faced by mining companies in a broader and deeper way than you’ll find in other markets.”
A platform for juniors
The unique two-tiered ecosystem – the TSX main board and the TSXV junior board – has also provided a significant advantage in terms of attracting new issuers from the mining sector.
In particular, TSXV is an appealing proposition for junior (and larger) mining firms as it poses lower listing costs and listing requirements compared to the main board; while also providing an incubatory environment for early stage exploration and prospecting companies with ambitions to one day progress to the main board.
“We have over 650 companies that have graduated from the junior to the main board. It’s a very active exchange in terms of growth with a very active graduation process too. Over 37% of companies on the S&P/TSX Capped Materials Index are graduates of the Venture Exchange.”
Canada’s robust regulatory environment is another boon for miners with plans to list on TSX. Canada is one of the safest financial jurisdictions in the world with a banking system that has stood the test of time, notably surviving the 2008 global financial crisis. Canada has also been ranked in the top two soundest banking systems in the world for nine consecutive years.
Furthermore, the broader Canadian economy is stable and the regulatory system is not as litigious as what is found in the US nor as cumbersome as London for example, according to McPherson.
On the TSX mining index, the regulatory environment is inherently associated with NI 43-101 – an all-encompassing mineral resource classification scheme which provides third-party verification of information relating to mineral properties.
“I would say ensuring that we have a regulatory environment that protects investors helps to keep our market robust, because it gives our investors confidence in what is being reported publicly by mining companies on the exchange.”
TSX’s close collaboration with the securities commissions across Canada is also vital in the preservation of transparency on its markets. Both exchanges also have a robust compulsory screening process for management and boards of companies wishing to list in Toronto.
“For international companies, we may enlist the services of a third-party security background check contractor. Ensuring that individuals who manage companies are upstanding to our personal information form is part of our qualifying process.”
Embracing sustainable mining
Going back a decade or two ago, the global mining industry had developed a bad reputation amongst civil society and the investor community; after several high-profile environmental mishaps and a general perceived lack of consideration for communities affected by mineral and metal extraction activities.
However, the mining sector has since worked hard to rectify this negative label attached to the industry over the last 20 years, recognising that it simply cannot proceed in the way it has done in the past.
This has led to the rise of sustainability as an immutable basis for operating in the sector, and TSX has worked closely with mining companies to nurture this approach in recent years. The exchange produces guidelines for issuers that outline appropriate ways of engaging with various stakeholders in mining projects.
“We provide services to assist our issuers after listing and these can include working with the investor relations groups of companies, coaching them on how to interact with the communities they operate in and how they impact those communities, trying to make that as positive as possible,” says McPherson.
Overall, he believes the wider mining industry is taking a more committed approach to sustainability, and this is being led by the major global investors and lenders such as BlackRock, who will not invest in any company that does not have a form of CSR policy in place.
The TSX listings team evaluates a company’s sustainability credentials from a financial and operational standpoint before recommending its suitability to the exchange.
“In my opinion, it’s only a matter of time before formal CSR requirements become standard for exchanges. Coming out of the last cycle, investors made the connection between social and/or environmental sustainability and sustainable cash flow. Mining companies are now doing so as well.”
A strong start to 2018
TSX has performed well so far in 2018 in terms of attracting new issuers, having been boosted by the mining sector’s delayed response to the upswing in commodity prices, which began at the start of 2016.
“At the end of last year, we saw a return to robust markets in terms of financing and listings and that has continued into this year. In 2017, we had 69 mining listings added to our exchange and this year we are aiming to do even better. At the middle of this year [June-end], we had 36 new issuers added to our exchange,” McPherson reveals.
He is encouraged by the number of new issuers the exchange attracted in the first half of the year and hopes TSX can replicate this performance in the second half of 2018 but is wary of making any forward statements. However, McPherson does point out that historically H2 results on the exchange are generally more robust than those in H1.
The S&P/TSX Capped Materials Index has also performed at a consistent level for the majority of the year to date despite an increasingly volatile global context marked by an escalating trade dispute between the US and China.
“We are not in a downcycle,” McPherson assures. “What we are seeing is volatility two years into an upcycle, which is not unusual. Looking forward, global economic growth is still forecasted above 3%.
“I think the general focus should be the fundamentals. Do the fundamentals support a sector in upswing? The answer is yes because there is still a supply/demand imbalance for commodities such as copper and battery minerals like lithium, cobalt, nickel, graphite and vanadium. Coupled with the positive global economic forecasts there is basis for a positive outlook.”
Leading the charge
The battery metals industry has been driving the recovery of the mining sector over the last 18 months and this is reflected in the increased issuer activity from this space on TSX, which incidentally speaks to how the exchange represents a microcosm of the wider industry.
Nonetheless, the bulk of the mining index on TSX is comprised of precious and base metals companies, with gold representing around 50% of all metals on the market, according to McPherson.
“Gold and base metals continue to dominate our market and I think this will continue. Innovation relating to the battery storage and general shift to electrification of key industries like automobiles means you will continue to see those metals doing well, along with base metals.
“Gold is always the king of the room. It’s always been that hedge, especially in relation to the US dollar strength and volatility.”
Despite having been the undisputed home of global mining financing for some time, TSX is not resting on its laurels, with McPherson identifying two ways that it can maintain and increase its position as the centre of global mining.
“We are not just a Canadian exchange, but a global stock exchange that provides a strong, deep and stable market for global mining companies and global investors. Our goal is to become even more aggressive in our expansion around the world.
“There is a lot of innovation taking place in the industry and our plan is to harness these trends to continuously improve our offering to participants in our markets.”