Financial Post, Jan. 12, 2013

by Barry Critchley

Kirk McKinnon is chief executive of MacDonald MinesExploration Ltd., a TSX Venture-listed exploration company active in Northern Ontario.

He is also passionate about his sector of the mining industry, which he believes is in a crisis — despite warm words of encouragement and supposed priority offered by the governments of Canada and Ontario.

McKinnnon’s passion was on display this week, when he released an update on the company’s drill program that quickly turned into an analysis of what plagues the sector and how various authorities and market participants have to work together to allow the industry to make its proper contribution to the economy.

“I am passionate about exploration because it is a real job builder and a real community builder,” said McKinnon, who is not looking for handouts, but rather recognition that change is required if the sector, which he regards as “being decimated,” is to be a “prime driver” for the economy.

“I see the impact on an industry segment that is vital to the Canadian economy,” he said, adding that his analysis, based on developments within his company and in the market, starts from the fact that trading volumes on the TSX and the TSX Venture Exchange last year were down substantially (20% and 33% respectively.)

That lack of overall investor interest amid reports that half the industry could disappear within a few years means it’s more difficult for the junior explorers to finance themselves, which leads to a further downward spiral.

“That lack of resonance with investors means that “the junior resource stocks have little or no resulting upward movement,” said McKinnon, who, just like TorontoDominion Bank and Royal Bank of Canada, is also no fan of high-frequency trading.

“We wonder why large trading institutions are allowed to impact junior mining stocks with high-frequency trading and also receive trading credits [under the so-called maker-taker model] from the TSX in return for placing bids,” he asks.

Given that Investment Industry Regulatory Organization of Canada and the Ontario Securities Commission are investigating such trading, McKinnon, whose company has been affected by such trading, has a suggestion: Ban the practice. “The playing field is not level and the large and wealthy have a decided edge and the TSX doesn’t realize that [by allowing high-frequency trading] it is neutering a very important segment” of its business.

McKinnon would also disallow short selling on stocks priced below $1. (Short selling was banned for financial stocks during the height of the global financial crisis.)

McKinnon is also critical of the lack of interest shown by the banks (which, along with other financial institutions, now own the country’s two exchanges) in the junior mining sector.

“Large Canadian national banks have certainly discouraged, and all but disallowed, any trading in junior mining stocks. This makes it extremely difficult for their clients to even consider these stocks as part of their overall portfolio or as opportunities for making money,” he said, noting that while “exploration stocks are high risk and do require some expertise and insight” by shareholders “they can also play a role in a balanced portfolio.” McKinnon’s comments have generated excitement including many emails applauding his statements but wondering why they hadn’t been made in the past.