TSX seeks more Mexican listings

Sometimes numbers can tell a story best and that’s certainly the case when it comes to Mexico’s mining industry.

Mexico ranked tops in the category of mineral potential in the Fraser Institute’s annual 2007/2008 survey. It placed 24th on the overall policy potential index, a composite index measuring the overall policy attractiveness of the survey’s 68 jurisdictions.

The NAFTA member is already the world’s second-largest silver producer, but last year it also made news in the gold sector, after witnessing the largest year-on-year increase in gold production with a value of US$876 million, a 9.6% increase over 2006.

Similar growth was seen in 2004 and 2005, most of it attributable to exploration work by Mexican juniors and Canadian companies, according to Ralph Cuervo-Lorens, a partner at Fraser Milner Casgrain, a leading Canadian law firm with a large mining practice.

Citing statistics from the Camara Minera de Mexico, or the Mining Chamber of Mexico, Cuervo-Lorens also noted that Mexico was the biggest beneficiary last year of foreign investment in exploration in Latin America, ahead of Peru, Brazil and Chile, with 6% of the world’s total investment, That was a 40% jump over 2006 and ahead of China, South Africa, the United States and Russia.

A raft of amendments to the country’s mining and foreign investment law in April 2005 significantly raised interest among foreign investors, Cuervo-Lorens noted, as it did away with previous restrictions on foreign ownership and improved the way applications and concessions were granted.

“I won’t say it’s a dream but it’s nothing like what you would have seen three or four years ago and it’s a lot better than in many other places,” he said in an interview.

Mining is now the fastest growing sector in Mexico. Its second-fastest growing sector, oil and gas, is about half the size, Cuervo-Lorens said. That’s one reason why Fraser Milner Casgrain started to focus on the sector about two years ago. One of its briefs is to help Mexican mining companies raise money on the Toronto Stock Exchange.

In June, the law firm, along with Sedna-Serficor, an independent Mexican investment bank, and the TSX, held an event in Mexico City targeted at Mexican mining companies considering a listing on the TSX. While the TSX has about 220 listings of companies with assets, exploration or concessions in Mexico, it has yet to list a single Mexican mining company.

Richard Nadeau, the Montreal-based senior vice president of the TSX, said he sees “very interesting potential” in Mexico, given the country’s economic profile. Not only does it have, like Canada, a strong focus on natural resources, but it also enjoys close trading relations with Canada and is home to a number of Canadian companies undertaking exploration and producing metals in the country.

Moreover, given that the Mexican Stock Exchange favors large, mature companies, most family owned or controlled, and state-owned companies, the mid-tier and junior companies have been effectively shut out of Mexico’s equity market.

“There is no alternative, as on the TSX Venture Exchange, for venture capital to be raised in the market for exploration or for any kind of natural resource company in Mexico,” Mauricio Candiani of investment bank Sedna-Serficor said in an interview.

As a result, it is still fairly early in their experience of listing companies on capital markets and that’s where the TSX, which has experience and a niche in listing smaller exploration companies, can bring value to Mexican companies, Nadeau of the TSX says.

Mining companies in Mexico have already started to look overseas to raise money. In May, Mexican base-metals producer Penoles floated its Fresnillo (FRES-L)gold and silver operations on the London Stock Exchange.

“The Penoles listing crystallized the issue but the idea had been floating around for awhile,” Cuervo-Lorens said. “We had been talking to Mexican companies before that and they were already thinking of alternative markets because the local markets have certain limitations.”

Mexican miners have also found it difficult “to make things work out of New York” he said, referring to potential listings on the New York Stock Exchange. “Onerous” reporting requirements, difficult and costly disclosure standards, “misguided” governance requirements and the expense of listing in New York are just some of the obstacles Mexican companies face trying to list on the NYSE, Cuervo-Lorens said.

When it comes to cost, a listing in Toronto is probably one-half to two-thirds the price of a listing in New York, he said, estimating that a Toronto listing would cost somewhere in the neighborhood of $400,000 to $500,000, a significant cost advantage.

Candiani of investment bank Sedna-Serficor said he is currently working with two Mexican companies that are contemplating a listing on the TSX but says there’s a long road ahead to convince companies in Mexico that they can make the leap in terms of complying with National Instrument 43-101 requirements.

He remains optimistic, however, that more Mexican companies will make the jump, but cautioned that the TSX leadership must keep Mexico on its agenda and continue to send people there to create awareness. “They are competing with other markets,” he said.

Nadeau of the TSX agreed. “I think Mexico ranks fairly high [on our priority list],” he said.