Finance For Mining

Canada has the largest and most successful mining stock market in the world with the highest concentration of listed mining companies. Potash financing here is more than anywhere else in the world. 45% of world mining financing and 20% of mineral exploration funding are from the Canadian Stock Exchange.

Overview

In Canada, mining development is generally divided into census, detail, exploration, feasibility studies, development and production phases. Canada’s mining companies are classified into small mining companies or Junior Mining Companies and Senior Mining Companies. The former generally take high risks of mineral prospecting and exploration work; the latter often has strong financial strength, generally conduct mining development and production work.

Large mining company has the financial capability to carry out exploration work on its own. For small mining company, the main approach to raise funds is through selling company shares or via venture capital. Most small mining companies raise funds through IPO.

Toronto Stock Exchange (TSX), the core of Canadian mining stock exchanges, was established in 1852. Now Canada has three main stock exchanges: TSX main Board, TSX Venture and the Energy Futures Exchange in Montreal (North America’s largest natural gas and electricity contract futures trading market). The TSX main Board provides financing channels for many large mining projects.  TSX Venture is the main exchange market for small mining companies and companies in the exploration phase. Montreal Exchange is the only stock exchange specialized in derivatives trading.

Financing and exit of potash mining company

Canada is recognized as the “Mining Financial Center in the world”, which the TSX provides financing and exit channels for mining projects of various size and exploration phases. The TSX has over 150 years history of mining finance and created a large pool of experienced mining investment institutional investors and high net worth individuals, as well as mining investment and research communities. More than 200 analysts track mining companies listed on the TSX to drill down and find the value of assets.

Till now, more than 18 potash/potassium mining companies have listed on the TSX,including potash companies with over half a century potash production history and those in exploration or development stage. They are located in Canada, the U.S., Ethiopia and Congo.

Canada Security Association (CSA) has created a green channel for potash exploration and development companies to facilitate the IPO financing and early exit of financial investors. Under the definitions of mineral reserves and resources approved by The Canadian Insitute of Mining, Metallurgy and Petroleum (CIM), CSA has developed the potash company disclosure standard “NI 43-101”,. This standard has been adopted by all the world’s major stock exchanges.

IPO of potash company in TSX has no profitability requirements on its production but the “NI 43-101” report prepared by the independent qualified third party with the publication of IPO prospectus. Under normal circumstances, the process of IPO in TSX requires3-6 months, but via the green channel, IPO for potash company only needs 6 weeks.

Introduction of Government “Flow-through share” policy

In Canada, to promote the development of mining industry, the Government established the “Flow-through share” policy. This policy allows the company to issue shares to the taxpayers under the relevant agreement. This was unique in the mining tax in Canada, and was a tax incentive policy by the Government specifically for the minerals (including oil and gas) exploration investment. The Government will give investors 100% tax exemption, which does not account towards the allowance in the registered retirement savings plan (RRSP). In addition, the Federal Government and provincial governments will offer additional tax incentives to investors from time to time.

As a result of this tax incentive policy, it has become the preferred financing option for many exploration companies. They must follow specific requirements issued by the Government: exploration companies should use the proceeds from issue if shares as exploration cost only and follow the following procedures:
1. Submit application to the Canada Revenue Agency, indicating that they will issue flow-through shares.
2. Sign flow-through share agreement with investors.
3. Issue shares to investors.
4. Use the proceeds from issue of flow-through shares for exploration.
5. Provide tax exemption allowance to investors.