Interesting Post from TraderCents>>>>>>>>>>>>>>>>>>>>>>>>>>>
MINING STANDARDS TASK FORCE RECOMMENDATIONS AIM TO PROTECT SMALL CAP
INVESTORS
In March 1997 the world awoke to the largest mining scandal in history -
BRE-X.
If you don't immediately wince when you hear this name, it is likely that
you were not a holder of mining stocks at the time this story broke. To
refresh memories, BRE-X was a Calgary based junior mining company which
'discovered' a "200 million ounce" gold deposit in Busang, Indonesia. During
the course of its life, BRE-X went from listing as a penny stock on the
small cap Alberta Stock Exchange to a listing on the Canada's senior board
the Toronto Stock Exchange. This went on to include inclusion in the
bellwether TSE 300 and TSE 35 indexes. After a series of intrigues on par
with a best-selling mystery novel, it was discovered that staff of BRE-X
(the identities of which are still unknown) had 'salted' core samples from
the mine with gold from other sources. Once the scandal broke, the market
traded equity of BRE-X lost $4 billion and decimated confidence in small cap
Canadian mining companies.
After the collapse of BRE-X, the Ontario Securities Commission and the
Toronto Stock Exchange undertook a review of the rules used to regulate
Canadian mining companies. They brought together a group of 11 members under
the name of The Mining Standards Task Force and today this body issued its
final report entitled: "Setting New Standards". The report is aimed at
re-building the TSE's, and Canada's, credibility with respect to regulatory
oversight and recommends tough new changes to the regulations that govern
operations of Canadian miners. According to John Carson, Senior VP of Market
Regulation with the TSE and Co-Chair of the Task Force, "By enhancing
investor protection through improved quality and quantity of disclosure and
better quality control practices in mineral exploration, we aim to increase
confidence in Canadian securities markets. Standards will clearly be raised
on many fronts." He went on to say "Our recommendations will make Canada and
the TSE global leaders in setting disclosure requirements and professional
standards for the mining sector."
The recommendations of the report, which can be accessed from the TSE news
release hyperlink below, are indeed sweeping and will provide investors with
substantial increase in regulatory oversight. In the wake of the BRE-X
scandal, these recommendations are indeed good news for investors who
purchase TSE listed stocks. However, the entire BRE-X debacle was not only
notable for its size and financial repercussions, but also for the ironic
fact that the premiere small cap market in Canada, the Vancouver Stock
Exchange, bore the brunt of the impact of BRE-X. Lost in news stories of the
time were details that BRE-X was never listed on the VSE and would not have
been due to the VSEs relatively stricter regulatory requirements regarding
the disclosure of unproven mining reserves. So, although we can applaud the
TSEs initiatives, it is hard not to wish that they had followed the VSEs
lead prior to BRE-X ever having occurred.
In terms of impact of this report on small cap investors, there are two
implications that should be remembered. First is a point from the TSEs
release which notes that There will be an incremental cost [due to the
regulations] and Some smaller companies that maintain minimal staff and may
not operate their own programs will face the greatest increase in costs. It
is a sad fact of life that increased investor protection often goes
hand-in-hand with increased costs for the issuer. This may translate into a
spillover impact on the financial performance of some small cap issues. And
second, there are other markets - most notably the OTC Bulletin Board in the
U.S. - which have less regulatory strictures than those covered in the
Mining Standards Task Force report. It is possible that some firms who might
have chosen a listing on the TSE or VSE will instead choose the OTC-BB
instead. This may prove economically more palatable to the companies
involved, however unfortunately it moves their stock listings into an arena
which provides for relatively less regulatory oversight.
To access reports relating to this story you may wish to try the following
hyperlinks:
tse.com
nationalpost.com
newsworld.cbc.ca
ng990202
You can read this great story and more at stockgroup.com |
