March/April 2011

TMX-LSE merger met with mixed reactions

Industry participants see little merit for small mining companies

By Paul Brent

The proposed merger of the Toronto and London stock exchanges has created a mixture of curiosity and concern within the Canadian mining industry. Billed as a merger of equals, the announcement has triggered strong reaction among those who make their living in mining. “I don’t want to be negative right off the bat but I’m not exactly jumping for joy,” said Brian Berner, chairman and CEO of Cuervo Resources Inc., a Toronto-based resource exploration company with operations in Peru. “It’s negative for all smaller corporations; you lose your local market.”

Under the terms of the deal, the London exchange will control 55 per cent of the merged entity. London and Toronto will have headquarters in each city – London will become the centre of international listings, while Toronto will head the equity listings for the entire group.

“I think this merger caught most people off guard,” said Ken Klassen, a partner with Bennett Jones in Toronto, who specializes in mining law. “The mining industry in Canada is incredibly important, not just for the TSX and the people that work there, but for the thousands and thousands of people who derive very good careers off of this industry.”

“The TSX is a world leader in financing exploration companies,” added Klassen, “The London stock exchange is not. To put it bluntly, I’m not sure why the TSX was interested in talking to the London Stock Exchange.”

The Ontario Mining Association noted that the two TMX exchanges are “world leaders in mine financing,” accounting for 80 per cent of mine financings in the world and 36 per cent of total equity capital raised globally in the mining sector between 1999 and 2009. At the end of last year, 1,531 mining companies were listed in Toronto – more than any other stock exchange – and last year, there were 208 new mining listings for the TSX, more than any other exchange.

Rickard Vernon, managing director and head of metals and mining with Toronto financial firm Stonecap Securities Inc., said the proposed merger of the exchanges might be most advantageous to the big international mining companies. “The Canadian market is pretty efficient and effective at financing resource stocks, so it may have little to no effect, particularly on the end of the market where we operate, which is the small- and mid-cap space,” said Vernon.

Doug Horswill, senior vice-president of sustainability and external affairs at Teck Resources Limited and chairman of the Mining Association of Canada, is awaiting further details on the merger. "If the merger is structured to enable Canada and the Canadian mining companies access to a wider, broader and deeper capital market, this should strengthen the industry," said Horswill.

The proposed merger has been met with enough initial concern and controversy in Canada that it will attract scrutiny from regulators and politicians, a development that suits Cuervo Resources’ Berner. “I want the government to have complete parliamentary hearings on this. I want these guys to walk through hoops,” he said.

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