Junior mining policy released for comment

The Ontario Securities Commission has released its new junior mine financing policy for public comment until July 30. It is expected that the policy will become official by September.

The policy is based on the report of the Thompson Committee on junior mine financing, released last summer.

Edward Thompson, who chaired the committee, says he is eager to see the policy in place and operating smoothly. He adds that the policy has been made more urgent by the federal government’s recent decision to reduce flow-through share financing for mineral exploration.

“What with flow-through being cut back, the junior mining companies will have to rely more and more on the regular markets to raise their exploration dollars. One of the reasons we (the Thompson committee) worked so hard at this new policy is that we knew a risk capital market was needed to partially compensate for any decrease in flow-through.”

While admitting the policy is significant, osc general counsel James Turner says it is not nearly as important to the mining industry as flow- through financing.

“This policy is certainly not going to generate financings the way flow- through does,” he said, alluding to predictions that $1 billion may be raised through the popular tax incentive in 1987. “The tax structure enables the investor to do deals; the policy only sets guidelines.”

(Finance Minister Michael Wilson’s June 18 white paper on tax reform called for the phase-out of earned depletion allowance, which provides a tax writeoff in excess of the amounts actually spent on exploration and development. The effect would be to reduce the flow- through tax writeoff to one dollar, from the current $1.33, for every dollar invested by an individual in Canadian mining exploration.)

The new policy will now permit founders (which includes prospectors and promoters) to obtain up to 60% of an issuer’s shares without cost. Ten per cent of those shares will be free of escrow and the balance, while escrowed, will be released automatically and in accordance with expenditures made on the property.

The policy also attempts to ensure that promoters are appropriately rewarded both through the issue to them of founders shares and through the ability to sell up to 10% of those shares as part of a prospectus distribution Promoters will also be permitted to obtain options on up to 20% of the number of shares offered pursuant to a prospectus.

The policy also includes the following provisions:

The issuer and the promoter must receive not less than 55% of the total funds paid by the public for all shares qualified under a prospectus.

Prior to seeking public financing, an issuer must have raised equity financing of at least $100,000 net to the treasury and have spent at least $60,000 on the exploration or development of a resource property.

Secondary distributions must be offered at the same price as the primary distributions.

A compensation option to purchase not more than 10% of the number of shares offered as part of a distribution is permitted to a dealer.

Bonus shares are prohibited, except as an alternative to cash commissions.

A dealer named in a prospectus as an underwriter or agent is required to act (or arrange for someone else to act) as a market-maker on the Canadian Over-the-Counter Automated Trading System (coats).

The osc recently announced the formation of a task force to consider the recommendation of the Thompson Committee for the immediate upgrading of coats.