May 2011

Talking up the merits of the merger

TMX Group presents its case at the PDAC Convention

By Mike Paduada

The TMX Group and London Stock Exchange Group have a tough challenge ahead of them. How do they convince the over 1,700 mining companies listed on their combined platforms and investors with $1.19 trillion in market capitalization that the merger will provide a clear net benefit to the markets?

The TMX Group took the first step by bringing the discussion to the mining companies and investors that converged in Toronto in March for the 2011 PDAC International Convention, Trade Show and Investors Exchange. Of the 27,700 attendees at the conference (which shattered last year’s record of 22,000) an estimated one-quarter were international delegates, representing over 100 countries.

The PDAC Convention gave the TMX Group an opportunity to present its case and address questions in a last-minute addition to the technical session program. Kevan Cowan, TMX Group president of TSX Markets and the group head of equities, explained that this is a strategic move in the face of impending global consolidation that will allow the merged group to reduce overhead, improve infrastructure and secure a strong, competitive position in global capital markets.

According to Cowan, the benefits of the union include competitive pricing, high-quality service and unrivaled access to capital markets. For those that are content with Canada’s current top standing in the global mining equity marketplace, “we may risk losing that competitive advantage if we don’t participate in consolidation internationally,” Cowan added.

“The TMX Group has been quite central to the fact that Canada has been a world leader in this industry,” explained Tony Andrews, PDAC executive director. “They have developed a niche market specialization in mining. Other countries want to emulate Canada and start a capital market that facilitates raising money for junior companies. We have to be aware that others would like to do this.”

Listening to what PDAC members had to say on the merger, it seems that they are taking a wait-and-see approach at this point. Executives from over 20 mining companies in the investor’s exchange, ranging from small juniors to multinational majors, were asked their opinion. All declined to comment officially, but some common apprehensions were about listing fees and improving capital markets. “My phone certainly hasn’t been ringing off the hook with people expressing concerns,” said Andrews. “From what I’ve heard, people feel there is little to no risk in the short term.”

Weighing in on the next phase of the merger discussion, Andrews applauded the Ontario government's decision to form a select committee. Made up of provincial parliamentarians from the Liberal, Progressive Conservative and NDP parties, the committee was tasked with reviewing the impact of the merger; their report was released in April. While it did not favour or oppose the merger outright, it did make nine recommendations. Among them was that there should be equal representation of the TMX on the board of directors. Under the current proposed agreement, the TMX occupies seven out of 15 seats on the board. The Ontario select committee's recommendations are not binding. The ultimate decision rests in the hands of the federal government.

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