Last year, Mining Markets reported on the birth of the Venture Capital Markets Association (VCMA), a group of small-cap, Canadian-listed companies, brokers and other professionals associated with the junior market who are concerned with overregulation of the industry, especially given the prolonged bear market in mining.
Mining Markets caught up with Don Mosher, cofounder of the VCMA and partner at B&D Capital Partners at last month’s Canadian Investor Conference in Vancouver for the latest on the organization’s activities.
Mining Markets: Don, for those who may not be familiar with the VCMA, can you tell us a little bit about the association and what you’re trying to do?
Don Mosher: We put the association together basically to offer a platform to a very fragmented industry which is the venture markets. Venture capital is basically comprised of a whole bunch of entrepreneurs out trying to run their own businesses and having to deal with the regulations imposed on them by regulators that really have no oversight and are really not answerable to anybody. So cost ramifications of new regulations they can put into place – nobody has to respond to it whereas we have to deal with them on a cost basis and it gets to a point where you just can’t move a venture capital company forward when you’re constantly dealing with new regulations, and new imposed costs. If you’re a mining company, very little of the money that you raise ends up going into the ground to move the projects forward. You’re paying the lawyers, the accountants and the exchange.
MM: Most investors have abandoned the junior mining space. Why should they care about this issue?
DM: I think in British Columbia alone, you’re looking at $1.5 billion in tax revenues from mining operations. In downtown Vancouver alone, there’s 1,300 mineral exploration and mining companies that keep all the lawyers and accountants in business, the restaurants — all the rest of the auxiliary services, the northern communities really rely on it whether it’s the helicopter services, the line cutters, the First Nations communities that supply a lot of those services when it comes to roads, bridges, etc. etc.
So if the venture market ceases to exist, where are company and job creation going to come from?
MM: Do you think it’s really that dire?
DM: Well, we’re into a bad cycle here. I mean if you take a look at it historically, after the crash in ’87, it was a very dire market all the way through until Murray Pezim’s Calpine Stikine play in ’91-’92 and then when the Bre-X fiasco happened in ’98 and the price of gold hit US$250 and copper was US65¢, there was an oversupply, so we had another 5 year bear cycle. Then all of a sudden there was a shortage of everything and it fed upon itself.
Now we’ve had another bear cycle hit — my own opinion is it started back in 2010 and we’re going to end up with the same kinds of commodities shortages and in addition to that, personnel shortages. A lot of the people that are running the companies are getting fed up — they’re in their 60s or 70s, they’re going to retire and there’s no incentive for young people to into mining and geology to replace that. So ultimately, either other jurisdictions pick up the slack or Canada pays attention to it and does something about it. When these cycles happen, the last thing you want to do is continue to impose regulations that act as a barrier to what little cash is out there going in to fund these projects.
MM: Have the regulators been responding the VCMA’s concerns at all?
I’ll give credit to the British Columbia Securities Commission (BCSC), the Alberta Securities Commission and the other eight jurisdictions that joined them with a new proposal that allows existing shareholders of companies to buy up to $15,000 worth of a financing in companies, although they’re non-accredited. Then, with advice from a broker, they can take as much as they want, but then you’re imposing all that liability on the broker.
Ontario says they’re going to follow suit, Newfoundland follows suit with whatever Ontario does.
I don’t think it’s the commissions that are really the problem. I think the biggest problem is IIROC (the Investment Industry Regulatory Organization of Canada). IIROC is run and controlled by the big banks — the big banks want nothing to do with the Venture markets, they’ve got a short-term outlook on profitability, they don’t realize that almost 800 companies on the big board in Toronto they graduated off the Venture market.
Companies are kind of organic in nature. Nortel would be a great example, it represented like 20% of the TSE index at one point — it went bankrupt, was broken up and split off, I think it was over 20,000 people that lost their jobs. How do you replace those jobs when a company ages and dies? Placer Dome (which was swallowed up by Barrick Gold in a takeover in 2005) is another example of that. So unless you continue to foster a venture market and allow the venture market access to capital through the brokers without imposing too much liability on the brokers so they’re not discouraged from putting their clients into high-risk, high-return ventures, and as long as you’re clear and transparent about the risks involved there, then it works for everybody.
But IIROC’s gone and decided that for example, with its imposed suitability requirements, people over the age of 55 or 60 shouldn’t be investing in venture companies. If you take a look at the accredited investor definition, if you pull all the people over the age of 55 out of there, it leaves a minute percentage of the Canadian public that qualifies to even invest in Venture companies.
People are allowed to go to casinos and gamble, 18 year old kids are allowed to drive Ferraris — all of that’s “unsuitable.” But here we have a regulatory body that answers to nobody that’s decided to impose a nanny nation type of a policy upon Canada, all in (the name of) wealth preservation. What about wealth creation?
There needs to be some sort of a compromise made here.
MM: So what’s the next step for the VCMA?
DM: We’ve been reaching out more to the political side. If there is somebody that these regulatory bodies answer to it’s going to be the politicians. What we have found is the politicians are incredibly ignorant of what’s going on. Their knowledge base is similar to the average Canadian out there. If you talk to somebody in Vancouver and they maybe have a bad opinion of mining, they don’t realize that if you don’t farm it, you mine it – they don’t care.
If you go into a northern community where a lot of the jobs are generated by the mining community, they care about it and they understand it, but they have a very small voice because their ratio in the voting population is so small compared to the urban centres. So we really need to reach out to the politicians, educate them, incentivize them that they really need to address this, they need to push back on the regulators and say hold on
here, we need a compromise, it needs to work for both sides.
MM: Are you talking to the regulators directly as well?
DM: We talk to the BCSC. IIROC’s different. It’s tough to get to these guys in Toronto, and if you go to IIROC’s website and see who runs IIROC, you’ll see it’s all the big banks. So how do I go and directly talk to BMO or Scotiabank, or Merrill Lynch of Canada?
For more information on the VCMA, check out their website: http://venturecrisis.org/
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