Editorial – The Orphan Industry

Junior mining is the industry nobody seems to want. Regulators are escalating efforts to push junior companies to the periphery of the mining game, governments are squeezing the industry by taxing anyone who invests in junior stocks whether they realize a capital gain or not, and stockbrokers see little reason to back juniors when the retail stock trade is becoming obsolete. Yet the very institutions that are slowly putting junior mining companies out of business rely on this boisterous industry more than they are willing to admit. For any business, satisfying the customer can sometimes be difficult, but without the customer there’s no reason to be in business in the first place. Similarly, regulators, governments officials and brokers may find it exasperating at times dealing with junior mining companies, but that is what many of them are there to do.

Regulators may wish there were better performance guarantees than junior companies can provide. Governments may hope that investors will back mining ventures even if there is no incentive to realize a capital gain. Stockbrokers may dream of generating commissions without having to deal with individual investors. In reality, however, if junior companies are forced out of business, everyone will suffer.

Major mining companies have come to realize that the entrepreneurial juniors contribute elements of dedication, commitment and intuition that large corporations and government bureaucracies cannot duplicate. Notwithstanding some great mineral discoveries that major companies have made, or the compilation of exploration data that governments can provide, it is the juniors that finance the bulk of grassroots mineral exploration.

Other countries envy the unique system of mineral discovery and development that has developed in Canada. Those with comparable mineral wealth can’t match Canadian companies’ ability to raise money. They have been unable to devise a similar way of spreading the risk by relying on equity capital from a broad base of individual investors.

South Africa has no exploration industry to speak of, its status as a dominant mineral producing nation based on discoveries made a century ago. European companies in general are masters at processing and marketing but are not discoverers. Although the U.S. has recently benefited from the Canadian players expanding south of the border, they have long relied on the risk-averse major companies to discover new mineral wealth. Australia has developed a system that is the closest cousin to Canada’s, but it suffers from a much narrower base of investors and has attracted many of those only because of gold producers’ tax-free status. Several South American countries have the geology to warrant interest from investors, but their financial institutions and traditions are unable to strike a successful balance of risk and reward.

But having built a unique system of mineral exploration financing that has proven its capability over the past 75 years, Canadian institutions are now ignoring the formula that has been so successful.

Financial gurus and regulators look with disdain at “Vancouver- listed companies with no history of earnings” while governments apply a capital gains tax that discriminates against mineral exploration because it considers the purchase price of flow-through shares to be zero.

They all see the flamboyant promoters who, in efforts to attract further investment, flaunt whatever success they’ve had. They assume that such ostentatious success must be the result of flouting the rules. What they don’t see is that for every one of those promoters there is an army of people who are merely doing what they love — being a part of an industry that explores for and develops new mineral wealth, which will ultimately benefit everyone.

Canada has developed the unique institutions and financial structure that has enabled its resource-based economy to flourish. In its rush to develop into what some see as a more sophisticated, service-based economy it should not forget where its strengths have traditionally lain. It is only by building on those strengths that the economy will be able to reach a more mature plateau and pursue those dreams of a better way of life.