Access to Capital
Capital Market Reforms
Canada is a top global centre for mine equity financing, with the TMX accounting in 2020 for more than 50% of all global mining financing transactions and 33% of the value raised. To ensure that we maintain our globally dominant status, PDAC works with securities commissions and stock exchanges on various reforms that will:
- Expand access to wider & new pools of capital
- Reduce the costs of capital-raising in Canada
- Maintain investor confidence in Canadian capital markets through improved enforcement.
Securities in Canada are regulated by the Canadian Securities Administrators (CSA) members - provincial securities regulators that make sure market participants adhere to relevant provincial and national instruments (NIs). When updating these rules, CSA members conduct public consultations from time to time, and PDAC responds to these consultation when relevant in order to accomplish the goals listed above. Below are a few of the relevant recent consultations and the PDAC responses to them.
Responses to recent public consultations
On January 11, 2024, the Canadian Investment Regulatory Organization (CIRO) published proposed amendments to support and clarify the short selling framework under the Universal Market Integrity Rules (UMIR), by:
- Adding a new positive requirement in UMIR 3.3 to have prior to order entry, a reasonable expectation to settle on settlement date any order that upon execution would be a short sale
- Adding supervisory and gatekeeper requirements pertaining to the proposed requirement in UMIR 3.3
- Consolidating other current provisions related to short selling to a common location within UMIR
Short selling provides an important functionality to healthy capital markets by generating liquidity and facilitating price discovery. However, regulations must protect against abusive practices and market manipulation and it is crucial to have effective oversight and enforcement to prevent abuse.
PDAC Recommendations
PDAC supports CIRO’s proposed amendments respecting the reasonable expectation to settle a short sale, as we believe the improved compliance, which is expected to be accomplished via these amendments, may reduce the potential for market manipulation via short selling.
In addition, we reinforce in this letter several recommendations PDAC has offered on short selling that are pertinent to the current consultation, such as instituting an alternative uptick rule, and the request to create a social media focused disclosure regime for both issuers and activist short sellers.
On April 13, 2023, CSA released a consultation regarding proposed amendments to Form 58-101F1 of NI 58-101 and proposed changes to the related national policy 58-201 (Corporate Governance Guidelines).
Currently, Form 58-101F1 mandates disclosure regarding representation of women on boards and in executive officer positions. In this consultation, CSA is asking for feedback regarding an expansion of the mandatory disclosure to go beyond women, and to include five underrepresented groups (“designated groups”). These are women, Indigenous peoples, racialized persons, LGBTQ2SI+ persons, and persons with disabilities.
In the consultation, CSA is seeking feedback regarding two potential forms (Representing two different approaches) to replace the current Form 58-101F1. In Form A, reporting is mandatory only regarding women, and a less prescriptive, narrative format is allowed. In contrast, Form B mandates disclosure on all five designated groups, and a more prescriptive, tabular format is required. In addition, the consultation addresses the possibility that similar disclosure requirements will be imposed on venture issuers in the future.
PDAC Recommendations
We recommend that CSA takes a hybrid approach, where a mandatory disclosure will be required regarding all designated groups, but the disclosure could be provided in a non-perspective, narrative format. In addition, we recommend exempting venture issuers from mandatory disclosure regarding underrepresented groups, but we do encourage CSA to provide them with a voluntary scheme of disclosure as guidance.
On April 14, 2022, CSA released public consultation regarding NI 43-101.
CSA noted that the purpose of this consultation paper “to obtain feedback from stakeholders about the efficacy of several key provisions of NI 43-101, priority areas for revision, and whether regulatory changes would address concerns expressed by certain stakeholders.”
CSA will use the feedback in considering ways “to update and enhance the current mineral disclosure requirements, to provide investors with more relevant and improved disclosure, and to continue to foster fair and efficient capital markets for mining issuers.”
PDAC Recommendations
PDAC recognizes the need for periodic review of NI 43-101 and was keen to respond to this consultation to emphasize a need to keep the report grounded solely within the technical realm, maintaining the PEA as a viable document, and improving SEDAR to enable better access of information and benchmarking of mineral projects.
On October 18, 2021, CSA released public consultation, asking for comments on its newly proposed National Instrument 51-107 (NI 51-107) Disclosure of Climate-related Matters.
The proposed Instrument is partly based on the recommendations of the taskforce for climate-related financial disclosures (TCFD) from 2017 and would require all listed issuers to disclose information based on four core elements: strategy, governance, risk management, metrics and targets. A key requirement from issuers is to disclose the GHG emissions or to explain why they have not done so.
The consultation sought input on areas such as the Instrument's suitability for issuers, cost of compliance and potential investor benefits. The proposed instrument does not distinguish between venture or non venture issuers in terms of reporting requirements, but venture issuers will have two additional years to prepare for implementation.
PDAC Recommendations
We recognize the growing importance of climate-related disclosures and see the Proposed Instruments as an opportunity to provide consistency for Canadian issuers in communicating with public markets. We emphasize that this instrument should lead to broader recognition of issuers by widely recognized ESG rating agencies, and note that some aspects in the proposed instrument are not suitable for exploration companies. We recommend CSA to develop a streamlined disclosure schemes for venture issuers and small emitters to address that issue.
On July 28, 2021, CSA published notice and request for comments on CSA’s proposed amendments to NI 45-106 and related instruments to introduce a new prospectus exemption available to reporting issuers that are listed on a Canadian stock exchange.
The proposed exemption relies on the issuer's continuous disclosure record, as supplemented with a short offering document, and would allow these issuers to distribute freely tradeable listed equity securities to the public.
Issuers would generally be limited to raising the greater of $5,000,000 or 10% of the issuer's market capitalization to a maximum total dollar amount of $10,000,000. In order to use the exemption, the issuer must have been a reporting issuer for at least 12 months.
The offering document would be a "core document" under Canadian securities legislation, forming part of the issuer's continuous disclosure record for purposes of secondary market civil liability.
PDAC Recommendations
PDAC welcomes CSA's Listed Issuer Financing Exemption proposal as it can address challenges that small-cap issuers face in raising small amounts of capital. We highlight ways CSA can ensure unnecessary burdens are not adopted in the exemption and support allowing issuers to use the proposed mechanism for continuous distributions.
On May 20, 2021, CSA published notice and request for comments to address proposed amendments to NI 51-102 and other changes related to an issuer's continuous disclosure obligations. Key topics of the consultation included:
- Risk disclosure requirements
- Consolidation of various continuous disclosure documents
- Consent provided by a qualified person (QP) for updated technical reports
- Proposal for a voluntary semi-annual reporting framework for some venture issuers
For the first two topics above - risk disclosure and document consolidations, CSA presented proposed amendments that are expected to come into force in the end of 2023. However, CSA didn't provide in this consultation any timeline or proposed amendments to address changes related to QPs consent or semi-annual reporting.
PDAC Recommendations
We recommend that companies must retain the ability to rank and group risks as they deem appropriate for public disclosure, and that non-author QPs can provide consent for technical reports in short form prospectus offerings. We also support the elimination of repetitive continuous disclosure obligations, and a voluntary semi-annual reporting regime for companies with no significant revenue, irrespective of listing exchange.
On May 26, 2021, the British Columbia Securities Commission (BCSC) published a Notice and Request for comments on its proposed British Columbia Instrument 51-519 Promotional Activity Disclosure and related Companion Policy 51-519 Promotional Activity Disclosure Requirements (See link to the BCSC notice).
In the notice, the BCSC stated that: “The proposed Instrument would establish a tailored framework for promotional activity disclosure in British Columbia, and is one component of a larger initiative we are pursuing to address problematic promotional activity. The Instrument would provide investors with improved transparency about the source and reliability of promotional activity, enabling them make more informed investment decisions. The disclosure would also assist the BCSC to identify and hold responsible those issuers and persons who conduct problematic promotional activity."
PDAC Recommendations
In this letter we recognized the importance of regulating promotional activities in order to maintain market integrity, and supported the efforts of the British Columbia Securities Commission (BCSC) to introduce relevant regulation. However, we noted several areas of concern regarding the proposal, including where the proposed regulations may cause unintended consequences for mineral industry issuers.
On December 31, 2014, NI 58-101 was amended to require companies to report various data regarding the representation of women on companies’ boards, and since then there has been a steady increase in women representation on corporate boards. This shift in representation seems to support the concept of “what gets measured, gets done”.
PDAC asserts that amending NI 58-101 to include the same disclosure practices for black, indigenous and people of color (“BIPOC”) may enhance the representations of these minority groups on corporate boards of public issuers.
PDAC Recommendations
PDAC recommends CSA to amend NI 58-101, Form 58-101F1, sections 11 to 15; to add “BIPOC” wherever there is reference to “women". Alternatively, we proposed to add a new section that will address “BIPOC” and mirror the same governance guidelines that are required for women.
On December 3, 2020, CSA published Consultation Paper 25-403 – Activist Short Selling, with the purpose of addressing concerns of issuers regarding activist short sellers in Canadian markets.
Short selling activity is seen as an integral part of a healthy market, providing additional liquidity for smaller companies, and a means to effect normal price discovery. In contrast, “activist” short sellers telegraph market positions and can exploit inherent uncertainties to amplify short theses publicly, without being based on concrete facts. Therefore, the nature of activist short selling should be monitored and well understood to ensure market imbalances do not manifest.
PDAC Recommendations
We recognized the importance of regulating promotional activities in order to maintain market integrity, and supported the efforts of the British Columbia Securities Commission (BCSC) to introduce relevant regulation. However, we noted several areas of concern regarding the proposal, including where the proposed regulations may cause unintended consequences for mineral industry issuers.
On July 9, 2020, a taskforce appointed by the Ontario government to modernize the province's capital markets published a comprehensive consultation report.
The report contained nearly 50 topics in various areas, grouped by the following categories:
- Improving Regulatory Structure
- Regulation as a Competitive Advantage
- Ensuring a Level Playing Field
- Proxy System, Corporate Governance and Mergers and Acquisitions (M&A)
- Fostering Innovation
PDAC Recommendations
We provided feedback on 15 proposals made by the Taskforce that were identified as relevant to PDAC members. Among other comments, we supported semi-annual reporting by companies without revenue from regular operation, the creation of an alternative offering model for reporting issuers and consolidation of reporting and regulatory requirements. In addition, we stressed the need to comprehensively address activist short selling in Canadian markets.
On May 9, 2019, CSA proposed amendments to NI 44-102 Shelf Distributions and to its companion policy (44-102CP), in order to enable ATM offering in Canada. The purpose of the proposed changes is to codify the requisite exemptive relief into the securities law so that active requests will no longer be required.
What is ATM offering?
- Alternative way to raise capital whereby a company issues shares directly into the market at prevailing market prices on an incremental basis
- Company determines maximum number of shares to be issued the beginning of an offering
- Share issuances are based on minimum price, volume and timing parameters set by company
- Allows issuer to maximize market liquidity and minimize shareholder dilution during fundraising
ATM offerings represent an attractive capital-raising option for issuers seeking to protect themselves from the many inefficiencies found in more traditional underwritten issuance model. An ATM offering may have many advantages for an issuer, including increased timing and liquidity-related flexibility, reduced costs, and less management resources (e.g. marketing, road show). The requirement to actively obtain exemptive relief from prospectus-related requirements makes the current ATM financing regime is impractical in Canada, and changing that is the purpose of the consultation.
PDAC Recommendations
We recommended that ATM issuances should not be limited by a 25% Daily Cap (based on average volume traded) proposed by CSA, as it would result in excessively protracted timelines to raise capital for mineral industry companies, particularly for small-to-mid sized issuers. In addition, we suggested CSA to consider the possibility of creating an ATM prospectus exemption.