Canarim reaps benefits of understanding risk

“We understand risk.” According to William Cara, manager of the Toronto office of Canarim Investment Corp., that’s the underlying philosophy which propelled Canarim to its number one spot as the largest underwriter in B.C. of high risk, speculative share issues. That formula for success, which has worked so well in B.C., is being brought to Toronto’s financial community — better known for its general abhorrence of junior mining issues. The underwriting and placing of junior resource shares is something Canarim has developed into a lucrative business under the tutelage of its founder Peter Brown in Vancouver. “It’s very much a judgment of Peter Brown’s,” Mr Cara says of the reason for opening up shop in Toronto. “Also, the market cycle is right and its a natural evolution of our growth,” he adds. More importantly, Mr Cara correctly notes that “the properties are here, the dollars are here and the markets are here.”

Having identified a window of opportunity in Ontario, Canarim has injected $3 million into its Toronto office atop the Toronto Stock Exchange Tower. That figure will probably be exceeded for additional computers, Mr Cara concedes. But he predicts the operation will be performing at the break-even level within six months and a recovery of investment capital is expected within 18 months.

For the junior mining sector, which for years has had a traditional move to Toronto will bring the west-coast philosophy towards high risk investments o much closer to home. That philosophy is to place speculative issues with l sophisticated investors who appreciate the upside leverage offered byhigh risk issues. Although the firm’s office is not yet completed, “we’re seeing 5-10 deal opportunities per day,” Mr Cara says. A majority of these are small by traditional brokerage house standards, — $500,000 placements — but typical of the needs of small resource companies. However, Canarim has also expanded to the level where it can handle much larger deals exceeding $20 million, Mr Cara notes.

But the junior company is the foundation on which Canarim has developed its specialized market niche. “We don’t care how junior a company sounds. It’s our duty to find out how to get the deal done,” he says. And getting deals done is what this outfit is all about. With no corporate finance or institutional sales departments, Canarim is unlike most Toronto-based investment houses.

“We are very much sales driven,” Mr Cara says, stressing that his account managers are responsible for not only closing underwriting deals, but for placing the issues and trading them in the secondary market. As a result, Mr Cara is predicting that $2 million earners will emerge in his operation. An incentive offered is a high commission rate which can total 50% of any underwriting fees generated. It’s a commission incentive which Canarim hopes will attract the best brokers in the city. Mr Cara emphasizes that he’s on the lookout for more people.

A majority of the small deals placed by Canarim are with “a sophisticated clientele which looks to us to attract the good high risk opportunities,” Mr Cara explains. “Whereas the other houses have the perspective of preserving wealth, our mandate is to create wealth.” As a result, a high percentage of the company’s placements will be of junior resource issues — companies which offer a shot at immense capital appreciation.

There’s no shortage of such junior company situations in Canada. The job at Canarim will be to prioritize the best deals and place them, followed with secondary market support. For the junior mining sector, the Canarim move brings the favorable west coast attitude towards junior issues to Toronto. Combined with the large variety of exploration situations available in Ontario and Quebec, that combination can ultimately only be good for business, both for Canarim and the juniors.