Law firms Clayton Utz and Blakiston & Crabb have been at the forefront of one of the major trends in the mining industry in the past two years: the move to Canada by miners looking to raise large amounts of money.
Law firms Clayton Utz and Blakiston & Crabb have been at the forefront of one of the major trends in the mining industry in the past two years: the move to Canada by miners looking to raise large amounts of money.
The figures raised by Perth-based mining companies in Canada in the past 12 months are quite staggering.
The biggest capital raisings have been undertaken by Equinox Minerals and Anvil Mining (about $A180 million each), Paladin Resources ($A115 million) and Moto Goldmines ($A70 million).
All of these companies are developing mining projects in Africa, and all have chosen to list on the Toronto Stock Exchange because that is where they have gained investor support.
The strength of the Toronto market has started to attract locally focused companies such as Kambalda nickel miner Western Areas and Crescent Gold.
Next cab off the rank is likely to be Brazil-focused Mirabela Nickel, which is evaluating a TSX listing.
Just last week, Aquila Resources announced it had appointed Canada’s Haywood Securities to assist with a $A54 million placement.
Clayton Utz partner Geoff Simpson, whose firm acted for Anvil, Equinox, Crescent and Western Areas, said mining companies listed in Toronto raised more than $C4 billion during 2004.
“There is no doubt that Toronto has become the major mining exchange in the world,” Mr Simpson told WA Business News.
The $C4 billion was three times the amount raised on the Australian Stock Exchange.
It was also four times the combined amount raised on the London Stock Exchange and the LSE’s Alternative Investment Market, which is another alternative to the ASX.
Ironically, the growing popularity of Canada’s capital markets has occurred despite a high level of regulation.
The requirements for listing on Toronto depend on whether a mining company is categorised as a senior producer, a junior producer or an explorer.
Each category has its own requirements for matters such as net tangible assets, reserves, revenue, planned work program, financial resources, shareholder spread, board and management.
Mr Simpson said a major regulatory change introduced last year could affect the way Australian companies approach the Canadian market.
Some foreign companies – such as Anvil and Equinox – have chosen to transfer their corporate domicile to Canada.
Typically, this meant a Canadian company was incorporated specifically for the purpose of acquiring the existing Australian company, either by a scheme of arrangement or a takeover.
“This added significantly to the time and cost of the overall process of obtaining a Canadian listing,” Mr Simpson said.
There are several reasons for re-domiciling, including market perception and the possibility of waivers from ASX listing rules.
However, one of the main reasons was that tax-exempt investors, such as pension funds and mutual funds, which are major players in the Canadian capital markets, could hold only 30 per cent of their assets in ‘foreign’ property or securities.
This requirement was abolished last year, which should significantly enhance the ability of Australian and other foreign companies to issue shares to Canadian investors.
“This development will encourage more companies to look at secondary listings in Canada rather than undertaking the more costly and cumbersome re-domicile process,” Mr Simpson said.
Crescent Gold and Western Areas are examples of companies that have recently adopted this approach.
Clayton Utz partner Will Moncrieff said the process of obtaining a Toronto listing was very different to that in Australia.
The underwriter’s lawyers take a central role in the due diligence process, in some cases handling the due diligence themselves.
In contrast to Australia, where the prospectus is the key step, the most important step in Canada is the ‘call down’.
This involves the underwriter’s lawyer asking hundreds of questions of the company and its accounting, legal and technical experts.
The questions are provided in advance in writing but must also be asked and answered at a meeting, usually by phone, of all the players.
Mr Moncrieff said that share placements in Canada also involved lawyers to a far greater degree than in Australia, even for routine placements.
“It comes as a bit of shock that there is a fairly intense legal process involved in these transactions,” he said.
The ASX has recently responded to the success of the TSX and London’s AIM market by proposing various reforms to make it more competitive.
It also wants the federal government to match Canada’s ‘flow-through’ tax scheme.
Mr Moncrieff believes these changes may assist smaller IPOs for loss-making exploration stocks but would have little impact on big capital raisings.
“Frankly I think that misses the point when you look at these big transactions,” he said.
Blakiston & Crabb partner Michael Blakiston agrees that Canada’s biggest attraction is a large pool of institutional money that is “far more open to investing in the (mining) sector than Australian institutions”.
A prime example was Paladin, which gained strong backing in Canada for its uranium project in Namibia.
“The Canadians were light years ahead of everybody else in terms of where uranium was going,” Mr Blakiston said.
Freehills partner Justin Mannolini attaches more weight to Canada’s flow-through shares scheme, which he said was critical in enabling the TSX to gain a critical mass of new listings.
“It had a bit of a snowball effect and the TSX became known as a mining exchange,” Mr Mannolini said. “That attracted a lot of institutions that were looking to invest in the sector.”
...as Canadian companies invest in WA
Strong investor support for Canadian mining companies has allowed several of these companies to acquire Australian miners over the past couple of years.
For lawyers and investment bankers advising on these transactions, the main task has been devising the most effective structure.
West Perth law firm Salter Power has been heavily involved in these transactions, acting for LionOre Inter-national in its 2004 bid for MPI Mines.
Last year, it acted for GBS Gold International, which acquired both Terra Gold and Northern Gold.
Terra and Northern have both been delisted from the Australian Stock Exchange but GBS chose not to list its stock, which trades on the Toronto Stock Exchange.
IAMGOLD Corporation, advised by Freehills, adopted a different approach in its successful bid for Gallery Gold.
IAM opted for an Australian scheme of arrangement and also chose to list its stock on the ASX (in the form of CHESS Depositary Instruments) as well as maintaining its existing listing on the Toronto Stock Exchange.
Freehills partner Justin Mannolini said the Australian listing of IAM involved a number of “complications and twists” and took a substantial amount of time.
“We needed a raft of waivers and modifications to align the two regulatory systems,” he said.
For instance, IAM obtained a 12-month waiver from listing rule 7.1, which imposes a 15 per cent limit on the amount of capital an ASX-listed company can raise without going back to shareholders for permission.
Mr Mannolini said the absence of this rule in Canada illustrated the benefits of being listed on the TSX.
The latest deal, the merger of Australian company Nu Star Mining and Canada’s Intrepid Minerals, was implemented via a Canadian Plan of Arrangement.
