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More than 10% of Canadian mining and metals companies delisted in 2014/15

More than 10% of Canadian mining and metals companies delisted in 2014/15

Photo by Reuters

28th June 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – More than 10% of the mining and metals companies listed on the TSX and TSX-V delisted during 2014 and 2015, according to a new study by professional services firm EY.

The report, titled 'What is driving delisting in the mining and metals sector in Canada?', found that 41% of companies delisted owing to mergers and acquisitions (M&A) activity, 33% delisted voluntarily, 33% failed to meet continuous listing requirements, and 10% delisted owning to formal insolvency proceedings.

According to EY senior VP for British Columbia mining and metals, transaction advisory services leader and report author Michelle Grant, 149 mining and metals companies delisted from the TSX and TSX-V in 2014 and, in 2015, a further 172 companies delisted.

Most companies that delisted in 2015 were listed for between 5 and 14 years and, according to Grant, it appeared that there was a direct correlation between the commodities boom and the listing of these companies.

DWINDLING LISTINGS
In 2014 the TSX and TSX-V were home to 57% of the world’s publicly listed mining and metals companies. Together, the two exchanges handled 48% of global mining equity transactions in 2013, and accounted for 46% of global mining equity capital that year. As of December 31, 2015, about 1 300 mining and metals companies were listed on these two exchanges, representing 40% of the total number of listed companies.

The total market capitalisation of these companies was C$180-billion, which accounted for about 8% of the total market capitalisation of these two exchanges. The 1 072 companies listed on the TSX-V had a total market capitalisation of about C$7.8-billion, while the 246 companies listed on the TSX had a market cap of about C$172-billion.

In 2011, the market capitalisation of mining and metals companies listed on the TSX and TSX-V was C$426-billion. From 2011 to 2015, the market capitalisation of these companies dropped by more than 40%.

EY found that in 2015, M&A activity was the most common reason for delisting. There was a 25% increase in delisting from M&A activity when comparing 2014 with 2015. Several of the deals involved multiple listed companies joining together under one new public vehicle and most of the deals involved companies focused on gold.

When delisting on a voluntary basis, the majority of companies determined that an alternative Canadian exchange was more appropriate for their needs (CSE or the TSX-V-NEX). “This suggests that Canadian stock exchanges are still viewed as an important place for junior miners to raise capital, but the listing requirements under the TSX and TSX-V may be too onerous for these companies in the short term,” Grant advised.

Under most circumstances, a failure to meet continuous listing requirements was a result of companies failing to file financial statement or management disclosure documents on time.

RARE INSOLVENCY
Meanwhile, formal insolvency proceedings doubled from 2014 to 2015, but this represented only 16 companies in total. This was likely owing to the capital structure of most junior mining companies (they were typically financed with equity) and the difficulty dealing with fixed assets in various jurisdictions and remote locations.

From January 1, 2013, through December 31, 2015, gold prices reached a high of $1 696/oz and a low of $1 056/oz. This volatility directly impacted the junior miners listed on the TSX-V. Many were unable to raise equity as they had done in the past, leading to the delisting of the company.

According to Grant, many of the companies listed on these exchanges were in pre-production and did not have any debt, which reduced the probability of insolvency proceedings, as there were no lenders to act as a catalyst. There was also limited opportunity for a company to benefit from a formal insolvency proceeding with minimal debt levels.

For those companies that are financed with debt, it was hard to extract value in a restructuring process as most of the assets were fixed to foreign land. Faced with this situation, lenders usually pursued informal workouts directly with companies under forbearance agreements. In 2015, several of the companies initiated proceedings in a foreign jurisdiction, which likely occurred after the lenders exhausted informal workout opportunities, EY found.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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