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Jim Letourneau's Blog

Investing, Technology, Travel, Geology, Music, Golf. I think that covers it.

Strangulation by Regulation

The TSX Venture has been crushed. Since venture companies are designed to spend money, they don't offer much upside for investors when risk capital dries up. Everybody is happy when markets go up and structural problems are often ignored.

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My friend, Joe Martin, has been championing the cause of junior miners for a long time. While corrections are a normal part of market activity, there are some structural changes that are hampering TSX listed companies. Now is a good time to step back and look at what works and what does not.  

The owner of the TSX Venture Exchange, The TMX Group, had been doing fine during the TSX Venture collapse. That appears unlikely to continue. 

Read Joe Martin's open letter of June 12, 2013 below if you care about having a public Canadian venture market. 

 

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June 12, 2013

An Open Letter to the Canadian Mining and Mineral Exploration Industries from Joe Martin, Chairman – Cambridge House International Inc.

Can the Junior Companies listed on Canadian exchanges survive this “Double Whammy?”

Venture companies listed on the Toronto Venture Exchange are facing a “Double Whammy”, something that the industry has never faced before.

1.       Current market conditions have made it almost impossible to raise capital.

2.       Regulations being imposed on raising venture capital in Canada may well make it impossible for any venture company to survive, even if, or when the taps for capital turn on.

Cambridge House is asking everyone in the business to join in supporting the Venture Company Association at the upcoming founding meeting:

Date: Tuesday June 18, 2013
Time: 2:00 – 4:00 PM
Location: Four Seasons Hotel Vancouver
Click Here To Register

Markets go up and markets go down but this “Double Whammy” may well bring about the death of the great historical tradition Canada has achieved in becoming the number one nation in the world in finding mineable ore bodies and bringing them into production in countries around the world.

At this meeting you will learn that this is not a question of changing one rule, or several rules. It is a question of overhauling the entire system.

The system is broken and it must be fixed.

Venture capital, required as risk capital in speculative investing, is a fundamental requirement in starting, building, and growing companies.

Apple Inc., the world’s largest company, started with two people developing computers in a garage. Microsoft had the determination of Bill Gates who went out seeking venture capital. Many great companies bear the name of their founders; all creative and imaginative individuals who needed speculative venture capital. Henry Ford, like all of them, had to raise capital. Look at thousands of jobs people like this have created.

Canada’s Hemlo Gold mine, one of the great mines in the world, owes its startup because of the determination of Canadian investors to overcome hurdles and who stay the course to bring them to life. Canadian mineral exploration and mining companies are well known around the world for their ability to bring success to these high risk, high reward projects.

Venture companies create jobs. Large companies build until they forget how they started: Nortel; Palm Pilot; Woodward’s; Eaton’s; Kodak. It is up to venture companies to create new opportunities and new jobs. And that means venture capital for speculative investments.

The world will need commodities and prices will once again go up. But, when it does, our mining and exploration companies will wake up to the fact that Canadian regulators have killed their ability to survive.

Canadian public markets are controlled by banks that have lost sight of the necessity of venture capital in growing an economy. The banks now own TMX, the company that controls both the TSX and TSX-Venture. They simply have no concept of the importance of having a venture market in creating jobs and growing an economy.

As the resource industry continues to weather this storm, there have been an unprecedented number of regulations brought into play that may well kill all hopes of a recovery in mineral exploration and mining.

In this time period the order of precedence in raising capital for venture companies is to:

·         pay accountants and auditors

·         pay legal

·         pay listing fees

·         keep the office doors open

There are over 700 companies on the TSX Venture Exchange that do not have the capability of meeting the financial requirements to survive this year.

One reason we are in a period of regulatory overkill is that there are very few people involved in venture capital represented on any of the governing bodies. These regulatory bodies are mostly a collection of lawyers: people who take fees, and increase regulation to create more fees. They are individuals who may think they are doing the right thing but in reality are killing the industry.

The Governing Bodies:

·         The exchanges (The TSX and TSX.V are the two main exchanges but about 30% of their volume is done by other platforms that do not involve individual investors)

·         The 13 securities commissions governing Canadian provinces and territories

·         CSA – the Canadian Securities Association – the association of the 13 security commissions in Canada

·         IIROC – Investment Industry Regulatory Organization of Canada

·         Independent brokerage firms have very little representation with IIROC

A list of problems is long but they include:

·         Securities commissions that ineptly try to enforce their own regulations

·         Lack of transparency in trading stocks (the multiple trading platforms do not share information

·         Algorithmic trading – computer trading in milliseconds

·         Killer rules for brokers in “know your client – know your product” rules

·         Retail brokerage firms are being regulated to cemetery plots

·         Naked shorts

·         Multiple levels of costly repetitive compliance

·         fees, fees, fees

These killer problems have not been created by firms requiring venture capital 

They have been created by unregulated regulators

It is Strangulation by Regulation 

WITHOUT SIGNIFICANT CHANGE, WHAT DOES THE FUTURE HOLD?

·         Jobs by the thousands will be lost in Canada

·         Jobs by the thousands will be lost by people working on Canadian mining projects around the world

·         Geology schools across Canada will close

·         Accounting firm will have massive layoffs

·         Legal firms will have massive layoffs

·         Canadians account for about 60% of world-wide exploration. The country will lose this position and the thousands of jobs that have created it.

·         The Aussies and Chinese will take over Canada’s role in mineral exploration

·         Canada will hang its head in shame because a proud nation will have lost its job creation industries

DO NOT LET OUR INDUSTRY BE STRANGLED

JOIN THE COUNTER REGULATION REVOLUTION

JOIN THE VENTURE COMPANY ASSOCIATION

ATTEND THE FOUNDING MEETING IN VANCOUVER ON TUESDAY JUNE 18 AND SUPPORT VCA ONLINE AT http://venturecompanyassociation.com

The above facts are not fabricated. Information has been sourced from the following articles:

·         The Canadian Economy is Regulated to Death

·         Strangulation by Regulation – is the Venture Exchange on Its Deathbed?

·         The Impact of the TSX Venture on the Economy

·         Can the TSX Venture be Saved?

·         ‘Say goodbye to the public venture market’ Advisor warns Flaherty of disappearing TSX.V

·         Proof the Largest Canadian Banks are Taking Over

·         The Destruction of the Canadian Investor: Why the TSX Venture is Failing

·         NYSE Floor Trader Explains How Stocks Are Traded In Dark Pools vs. Lit Markets: Dark Pools Explained

·         The Shocking Truth About High Frequency Trading