Poor man's junior financing rule must be fast-tracked

Mineweb's Kip Keen argues in favour of a new rule, proposed by the Venture, that would relax Canadian financing regulations controlling who can apply.

Author: Kip Keen
Posted: Wednesday , 25 Sep 2013

HALIFAX, NS (MINEWEB) -

In many ways, that there are any rules governing who among Canadians can take part in financings is perverse. I can sink my meagre life savings into a two bit junior I think has a hot idea on the open stock market without any guiding hand; no regulator to forbid me from my own stupidity or brilliance as the rare case may be.

But, if I want to directly fund an exploration company - buying new paper in a financing - the regulators forbid it unless I'm rich; unless I'm chummy or family with company leaders; or unless, if I happen to be of more regular means and not personal with anybody in the company, I sign a brow-beating waiver that acknowledges, Yes, I may be making a stupid decision.

It's an odious division. It says the rich are more capable of making investment decisions than I am. And even if they were, who is the regulator to tell me so? Sometimes dumb decisions work out great, like the time I was 11 and I paid out the little hard earned cash to my name ordering instructions on how to make hydrogen gas using household items, that advertisement in the back of a Popular Science magazine. It worked. Oh it worked, and coupled with an electronic ignitor from a chemical rocket kit...

But there it is. The rules exist, ostensibly to protect me, and other idiots, from funding explorers. Blowing ourselves up, or down, as the case may be.

Arguably then, the Venture's recent proposition to Canada's provincial regulators doesn't go far enough. But it's a move in the right direction. The news came out late last week in a Reuters piece by Allison Martell. The TSX Venture has put it to Canada's securities regulators (the many of them who oversee rules province by province) to ease conditions over financings. Venture President John McCoach told Reuters that the Venture had asked regulators to consider letting poor sods like me – net worth under a million – shell out up to $10,000 per company per year in financings with the caveat I have been a shareholder of said company for 60 days.

It bears pointing out that the Venture has a vested interest in the new rules, of course. Juniors are its chief clients – through listing fees, etc. – and the more cash the Venture can help drum up for its clients, the better things look for it. Call it symbiosis in this case, though, because the proposal, if profiting the Venture, also lessens the funny state control over my idiocy when it comes to who I give the few nuts I have squirreled away. And, to reiterate: this is just a proposal and one that may only get approved at a snail's pace, after, as Reuters reported, it goes through a comment period, a process that would bring out proponents and opponents of less securities regulation. That said, Reuters did quote a source saying the BC Securities Commission (BCSC) was “amenable” to the idea and would float a proposal about it later this year. This, the BCSC, a regulator which oversees many of Canada's juniors. Let's hope.

And perhaps in capping what investors-in-rags can spend without having to prostrate themselves there is an interesting upside, even if it still doesn't calm the screw-off feelings I have towards people telling me how to spend my money. I was curious to see what John Kaiser, who tracks juniors over at Kaiser Research, made of the proposal, starting with a few emails, ending in a talk Tuesday. He has a lot to say otherwise, as usual, about the state of juniors, the dying 600 to 700 hundred (i.e. half) on the Venture. But more to the point he called the rule under consideration “very good” and noted that, with the $10,000 cap, you could imagine Joe and Jill speculator spreading their assets around more than one junior in the exploration business. Probably a wise decision anyway. But really, ought the matter be forced?

There would be pretty strong uptake under the possible new rule, Kaiser said. It would restore health to the junior market eco-system by adding complexity and diversity to share structures. He even used the word heal (and eco-system.) A good thing. Not that he was talking panacea. He didn't see it as a powerful anti-depressant that might jolt the dour market we have been in for a couple years. But he reckoned when the market shakes its funk, the rule change, by giving investors more access to juniors, could then have a meaningful impact.

“They could tap into a large field of retail investors,” Kaiser said, adding, the retail investor might inform the junior, “If you ever want to do a financing, call me up.”

For my part, I wonder if it might kickstart exploration campaigns ahead of the market turn, were the rule to come quick (which seems highly unlikely). While, as Kaiser noted, markets are in the dumps, no argument there, if the rule was here, the most severely affected juniors would be turning to it in droves, and the best among them might succeed in capitalizing on it. The rule could unlock a pack of sub-million-net-worth investors that want to back teams with their cash.

Maybe that comes off as overly optimistic. But to sound off on the proposed rule I also turned to a friend in a local exploration company. A road warrior who often goes on fundraising campaigns. He preferred not to see his name in print, but his points stand for many a bonafide junior with active exploration programs and tenacious management.

“We're always hamstrung by having to go to shareholders whose net worth is at least $1 million dollars,” he said. It means knocking on the same dozen or so doors over and over again, pleading to the same, dozen or so heavily invested high-net-worth individuals again and again. On the new rule, he said. “I don't see it as a lifeboat, but..." He trailed off and went on to say it would be nice to have another set of investors you could turn to each year, ones that don't necessarily have massive positions in the company already. “We'd use the rule now if we could," he said.

Indeed. As Kaiser put it: “This needs to be fast tracked.”

http://www.mineweb.com/mineweb/content/en/mineweb-junior-mining?oid=206106&sn=Detail