May 2011 TSXV vs AIM vs BVL vs BVC

The traditional home of junior exploration companies is the TSXV in Canada and this has certainly been the case for juniors picking up projects in Colombia. While several transactions (IPOs and RTOs) remain in the pipeline, there are the initial signs that the TSXV is getting saturated with the Colombia story and juniors are starting to look elsewhere to list. With over 35 junior explorers listed on the TSXV on the back of Colombian projects, London’s AIM is starting to get some attention (see Touchstone Holdings below).

Canada saturation could also mean that regional stockmarkets will see more action. Both Peru and Colombia have institutional investors that want to invest in mining and exploration but have limited opportunities to do so. Colombia is gold country yet local investors only have one name to invest in: Mineros SA, a company that produces around 100,000 oz/y Au from alluvial deposits and a small-scale mine. As the only game in town, the laws of supply and demand mean its stock is overvalued compared to similar size companies on the Toronto bourse, a fact that has contributed to this company not undertaking a secondary listing in Toronto, New York or London.

Colombia, where pension funds manage US$8 billion, represents an untapped investor base that explorers and miners can use to diversify their investor base, increase support for their stock and provide local financial institutions with a chance to share in project success. The secondary listing of Canadian-listed energy companies Pacific Rubiales (TSX: PRE) and Canacol (TSXV: CNE) were very popular with Colombian investors, particularly Pacific Rubiales.

Peru’s Bolsa de Valores de Lima (BVL), the Lima stock exchange, showed the potential of secondary listings of Canadian juniors in 2006-2007, with the likes of Candente Resources, Vena Resources (TSX: VEM) and Peru Copper, an influx that propelled Lima to become South America's most successful exchange in 2006, with a 161-per-cent rise in the general index. Like Peru, Colombia’s investment laws mean that pension and mutual have to invest a major proportion of capital in locally-listed securities.

Peru implemented listing standards modelled on the Toronto Stock Exchange, which Colombia appears to be doing too, such as accepting the NI 43-101 resource statement requirements to mitigate project risk. In essence, if companies comply with Canadian market regulations and requirements, Colombia will generally accept these, meaning a company simply has to comply with local financial rules to be able to list on the BVC. Contrast this approach with that of Chile, a mining giant that is also desperate to get mines to list on its stock exchange. However, Chile was arrogant enough to try and reinvent the wheel and create its own regulatory and resource reporting framework. No company wants to increase the amount of regulation it has to work through and so consequently, Chile’s stock market is still waiting for secondary listings.

A local secondary listing helps mitigate the long-term risk potential of resource nationalism-driven politics as local ownership gives foreign-run companies access to sophisticated local investors that can assist with navigation through the often complex world of local politics. Maybe Greystar should have listed in Colombia long ago? It certainly started talking about it early enough! One can conjecture whether there would have been resistance to its project if mandarins in Bogota and Bucaramanga had held a chunk of its stock…

In Colombia, the financial houses are aggressively promoting the secondary listing option, keen to reap the fees this will generate. The drive to list miners and explorers on the BVC is being led by Citi Bank, but local investment banks such as Interbolsa and keen to get in on the action too. This action will be an obvious target for Celfin Capital once it receives its banking license in the coming months, as the company is very active in secondary listings in Peru. Its Peruvian sibling - Celfin Capital Peru – is in the process of listing Canada’s Luna Gold (TSXV: LGC) on the BVL, a company that has gold production and exploration projects in Brazil.

So who will be first in Colombia? In 2009, the frontrunners were B2Gold (TSX: BTO) and Greystar Resources, but B2Gold is making a discreet exit and Greystar first has to configure a project that works with regulators. Our nod goes to the entities formerly known as Medoro Resources/Gran Colombia Gold. Medoro was quite advanced in its listing application process so when the merger is concluded it makes sense for the new entity to list in Colombia. In addition, the Segovia/Remedios assets of Gran Colombia are perhaps the most famous and known in Colombia and it is a producer, something the local market will love.