Resource sector issuers on Canada’s leading
stock exchanges are expected to endure another tough year in
the capital markets as investors continue to shun the mining
industry, while the bourse itself is also facing straitened
TMX Group Ltd, comprised of the Toronto Stock Exchange (TSX)
and TSX Venture Exchange (TSX-V), on a combined basis, remains
the world’s leading hub for mining finance, with
1,318 listed mining companies out of a global estimate of 3,300
listed entities as of 31 December 2015.
This is compared with 651 miners listed on the Australian
Securities Exchange (ASX), 170 on the London Stock Exchange
(LSE) and its second tier Alternative Investment Market (AIM)
and 43 on the Johannesburg Stock Exchange (JSE).
Its bias in this direction has meant that TMX Group has
suffered disproportionately from the collapse in the
commodities industry and its financial position is continuing
In the fourth quarter of 2015, the group’s
revenue fell to Canadian dollar (C$) 177.1m ($128.6m*) from
C$182.7m in Q4 2014 and it recorded a diluted loss per share of
C$2.92, compared to earnings per share of C$0.76 for the same
Part of TMX’s problem stems for the fact that
investors were too bullish about commodities during the recent
mining supercycle and significantly overvalued the exchange. In
September 2012, a consortium of 13 major Canadian financial
institutions, comprising the Maple Group Acquisition Corp.,
completed a C$3.8bn purchase of TMX Group – a deal
which has now come back to haunt the company.
"In accounting for the Maple transaction, all of our assets
were recorded based on fair value in Q3/12 and at a time when
the resource sector was much more robust," TMX said in its
fourth quarter 2015 earnings report.
"While our revenue and customer base are somewhat
diversified, a significant portion of our issuers come from the
resource sector. The valuation of goodwill and intangible
assets was established near the peak of the commodity cycle.
Since that time, the impact of lower commodity prices and the
downturn in the resource sector has significantly impacted
financing and trading activity. Specifically, the TSX-V market
and the smaller market cap listings on TSX have been negatively
impacted, and this has contributed to the impairment in the
value of goodwill and intangible assets attributed to certain
cash-generating units," it continued.
"The TMX finds itself in a perfect storm where commodity
markets have collapsed and volumes have dried up on most
exchanges," Ian Russell, CEO of the Investment Industry
Association of Canada, told the country’s
Financial Post (FP) in February.
"It’s not so much an identity crisis as much as it
may be a struggle for survival."
As the FP report noted, the group’s
business formula prescribes a continued focus on resource
listings, with a few major blue chip financials, such as banks,
telecommunications and transport giants mixed in for
This situation has unnerved some of the
exchange’s observers, but most agree that TMX
cannot afford to shun mining, but rather needs to be more
innovative about the way it handles these listings –
perhaps by promoting a stronger relationship between resources
and the group’s emerging breadwinner,
Companies evolve to survive
For mining companies listed on the TMX exchanges,
particularly those on the TSX-V junior tier, the immediate
priority is finding ways to survive the downturn.
Spotting a positive trend in demand for, and investor
interest in, so-called energy metals and minerals (namely
lithium, graphite and cobalt), businesses with the capacity and
agility to maximise their exposure to this sector are doing so
In September last year, Vancouver-based Global Cobalt Corp.
announced it would spin out a new company named Global Energy
Metals Corp. (GEMC) "as a vehicle for the acquisition and
development of battery metals projects".
"The mining sector was, and remains, caught in an
unparalleled downward trend," Mitchell Smith, CEO of GEMC, told
IM. "Despite this downturn, we believed that
waiting was no longer a viable strategy and needed to take
action to keep our business and projects moving forward."
"We opted to break from convention and disrupt the
company’s trajectory. This transaction allows GEMC
to examine other acquisitions in the battery metals space.
There are unique opportunities to acquire stakes on the project
level from companies that have been unable to advance projects
due to a lack of available funds and to move forward a strategy
to be a bank for these unique projects," Smith explained.
Starting from a focus on cobalt, GEMC is looking to expand
its portfolio to cover other energy metals and to grow its
business by exploring joint ventures with strategic
GEMC is not alone in shifting and sharpening its focus.
TSX-listed Avalon Rare Metals Inc., whose previous top targets
include rare earths and tin and which delisted from the New
York Stock Exchange at the end of last year to conserve cash,
has said that it now intends to prioritise development of its
Separation Rapids lithium project in Ontario.
Vancouver headquartered Prima Diamond Corp. (formerly Prima
Fluorspar) said in February it intends to buy the Green Energy
lithium property in Utah, US and is one of a number of Canadian
companies jumping into lithium properties just a truck drive
away from Tesla Motors Inc.’s lithium-ion (Li-ion)
Gigafactory in Nevada.
Industry observers, while viewing such moves with a healthy
dose of cynicism, admit that these strategies are probably the
only way of staying afloat.
Jonathan Lee, president of New York-based consultancy, JGL
Partners LLC, which helps companies raise money on North
American exchanges, agrees with GEMC’s Smith on
the opportunities offered by the rout in listed
"Mining finance is dead," Lee told IM.
"It’s a restructuring effort now and guys that
know bankruptcy and assets should do well, as they can get
certain claims on property fairly cheaply."
For his part, Smith is confident that, for battery minerals,
the only way is up. "Macro drivers are set to propel demand for
battery metals including lithium, cobalt and graphite, as
energy storage demand rises and end usage applications grow,"
he said. "Now that the spinout has been finalised,
we’re convinced that the new organisational
structure was the correct strategy."
*Conversions made February 2016