Mining companies looking to access the capital markets to finance project development list their shares on the Toronto Stock Exchange (TSX) and the TSX Venture Exchange (TSXV) more than on any other stock exchange.
The TSX and TSXV pride themselves on being the global exchange leaders for mining companies at all stages of development. Total 2012 financings of C$56.6 billion on the TSX and C$6 billion on the TSXV1 have been reported. In 2012 the total value traded on the TSX was C$273 billion and on the TSXV was C$10 billion. The TSX is the preferred Canadian stock exchange for mining companies looking to finance the development of major deposits, as the junior TSXV does not offer the same access to the capital markets. As a result of a recent notice published by the TSX, it may have become tougher for mining companies to complete an IPO on the TSX or to graduate from the TSXV to the TSX to gain better access to the capital markets.
Advanced properties and ‟economically interesting grades”
Mining companies seeking to list on the TSX can apply under two different categories: (i) Producing Mining Companies or (ii) Mineral Exploration and Development-Stage Companies. To qualify for listing under the latter category, among other prescribed criteria, an applicant must have an Advanced Property. TSX listing rules provide that the exchange will “generally consider a property to be sufficiently advanced if continuity of mineralization is demonstrated in three dimensions at economically interesting grades” as detailed in a technical report prepared by an independent qualified person in accordance with Canada’s National Instrument 43-101 - Standards of Disclosure for Mineral Products (NI 43-101) or the equivalent under foreign (non-Canadian) reporting systems.
On November 7, 2013, the TSX released Staff Notice 2013-00032 (the TSX Notice), which includes guidance on the meaning of “economically interesting grades” for the purpose of listing applications made under the Mineral Exploration and Development-Stage category.
Infrastructure—an important consideration
The TSX Notice indicates that when a bulk commodity project3 is located in a remote or isolated area that is not readily accessible by road, railway or port, the TSX will consider infrastructure to be an important factor in determining whether the project qualifies as an Advanced Property for listing purposes. While infrastructure development costs will be taken into consideration in assessing the economic viability of a project, the TSX does not require the listing applicant to have the necessary funds on hand to develop the infrastructure as a condition of listing. However, the TSX Notice states that, “Industrial mineral projects located in remote areas which are far away from their targeted markets will typically not be economical given their low intrinsic value.” This does not bode well for many applicants.
To satisfy the “economically interesting grades” requirement for bulk commodity projects in remote or isolated locations, the TSX indicates that the assumptions, plans and cost estimates for infrastructure should ideally be outlined in a technical report (in the form prescribed by NI 43-101) and be supported by one of the following:
- Preliminary economic assessment (PEA)—A study, other than a pre-feasibility or feasibility study, that includes an economic analysis of the potential viability of mineral resources.4
- Preliminary feasibility study—A comprehensive study of a range of options for the technical and economic viability of a mineral project that has advanced to a stage where a preferred mining method, in the case of underground mining, or the pit configuration, in the case of an open pit, is established and an effective method of mineral processing is determined. A preliminary feasibility study must include a financial analysis based on reasonable assumptions on mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations and the evaluation of any other relevant factors which are sufficient to determine if all or part of the mineral resource of the project may be classified as a mineral reserve.5
- Feasibility study—A comprehensive technical and economic study of the selected development option for a mineral project that includes appropriately detailed assessments of realistically assumed mining, processing, metallurgical, economic, marketing, legal, environmental, social and governmental considerations together with any other relevant operational factors and detailed financial analysis, that are necessary to demonstrate at the time of reporting that extraction is reasonably justified (economically mineable). The results of the study may reasonably serve as the basis for a final decision by a proponent or financial institution to proceed with, or finance, the development of the project. The confidence level of the study will be higher than that of a pre-feasibility study.6
Where the technical report submitted to support a listing application does not address infrastructure, the TSX suggests that applicants should consult with the TSX to determine whether alternative supporting information may be provided to satisfy the requirement for “economically interesting grades.”
The foregoing suggests that the TSX has raised the bar, potentially significantly, for listings on the senior Canadian exchange. A project must be quite advanced before an NI 43-101-compliant PEA, preliminary feasibility study or feasibility study can be completed. As well, the preparation of such a study can be challenging where the subject mineral does not have a ready market and a comprehensive understanding of the project’s various elements has yet to be developed.
Unlike in the past, it may no longer be sufficient for a mineral project to demonstrate the existence of “continuity of mineralization …in three dimensions at economically interesting grades” for an issuer to qualify for a TSX listing. A requirement for issuers to reach the PEA or pre-feasibility/feasibility stage before qualifying for listing will likely increase the costs for issuers seeking to access the capital markets through the TSX. This is not likely to be welcome news.