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Is the TSX Venture Exchange Death Spiral Over?

-- Posted Wednesday, 6 March 2013 | | Disqus

By Ian Cassel

57% of the world’s public mining companies are traded on the Toronto Stock Exchange (364 companies) and TSX Venture Exchange (1309 companies), and 70% of the equity capital raised globally for mining companies was raised on these two exchanges. The junior mining and exploration industry dominates the TSX Venture exchange making up 58% of the whole exchange (1309 of 2254 companies listed), and most investors look at the TSX Venture Exchange as a proxy for junior mining.


A 10 year chart of the TSX Venture Exchange vs Russell 2000 from 2003 – 2013 shows that the TSX Venture Exchange is up 1% in the last 10 years. This is most puzzling since the underlying commodities driving the junior mining industry have all done very well. Since 2003, Gold is up 400%, Silver is up 600%, Copper is up 450%, Lead is up 500%, Zinc is up 150%, and Nickel is up 100%. Obviously input costs for mining have gone up as well, but you would have expected a little more then “flat” performance over the last decade.

From 2006-2009 I was 80% invested in mining related equities and did fairly well. I went to several equity mining focused conferences during this time period, and the buzz around the junior mining space in 2006-2007 was very much like the Internet bubble of 1999-2001. In 2006, I swear if you were a Canadian listed company with a moose pasture you would have ample ability to raise $2-3 million to drill some holes in the ground to find out if anything lay beneath the surface.

The Canadian Machine, which is what many of us US investors call the junior mining funding establishment in Canada, has historically raised hundreds of billions of dollars for these very speculative junior mining and exploration companies. Canada itself is a resource rich country, and most of its citizens-investors also have a passion for resources. This along with different tax laws allowing direct investments in companies in tax-free accounts has allowed the Canadian Machine to fund thousands of companies.


Junior mining is not very different from biotech or other industries where there is substantial upfront cost before $1 of revenue is produced. When you have a majority of companies that make up a stock exchange whose success-failure is tied to raising capital, you are bound to have significant ups and downs. So as you can imagine, the amount of financings is directly correlated with the overall performance of the TSX Venture Exchange. For whatever reason, about two years ago the Canadian Machine’s ability to raise capital dried up for junior mining companies, and the TSX Venture has suffered ever since. A picture is worth a thousand words, and so is this two-year chart below of the TSX Venture vs Russell 2000.


I’ve spoken to a few Canadian brokerages, and they say the financing markets for junior mining stocks have started to rebound. Could the TSX Venture Exchange Death Spiral finally be over? I think so, but I believe more importantly a lot of the juniors that shouldn’t have been public in the first place have gone out of business. I’m sure many more in the months ahead will go out of business. This pruning of the junior mining space is/was very much needed. There were far too many junior mining companies with bad management teams, bad share structures, sub-par resources, and mediocre business plans on the TSX Venture Exchange. Canadian investors got sick of funding them. Although I don’t invest in very many resource companies anymore, now is the time to start looking for opportunities.

The MicroCapClub (mc2) is an exclusive micro cap forum focused on micro cap companies (sub $300m market cap). The MicroCapClub was created and founded by Ian Cassel as a way to share ideas and to learn from other seasoned like-minded micro cap investors. Our goal at is quality membership and quality stock ideas. If you are an experienced micro cap investor, feel free to Apply today.

-- Posted Wednesday, 6 March 2013 | Digg This Article | Source:

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