Bennett Jones
Written by James D. Beeby and James Clare
Canadian mining issuers are showing an increased interest in at-the-market equity programs (ATMs) to access funding. Since July 2019, ATM offerings on Canadian exchanges worth well over $500 million have been announced in the mining sector.
An ATM is a non-fixed price distribution of equity securities under the shelf prospectus procedures through the facilities of one or more public markets using a registered investment dealer as agent. The ATM program establishes a maximum amount of shares which can be sold over time and share sales are conducted on an ongoing basis at prevailing market prices, as and when the issuer wishes to sell.
ATMs can be attractive for issuers in capital-intensive industries as a complementary source of alternative financing. They have been used extensively in the United States, and Canadian issuers in the utilities and the cannabis sectors have established ATM programs in recent years as well.
Advantages of ATM Offerings
- Cost of capital: Agents’ commissions on an ATM can be as low as 2 percent, while traditional financings may be in the range of 5 percent or higher.
- Flexibility: Once the ATM has been launched the issuer can control the timing of sales and sell stock quickly in response to favourable market conditions or as financing is needed.
- Minimal market impact: Securities are sold in small amounts over time and there is no requirement to publicly announce each sale.
- Reduced impact on management: ATMs do not require roadshows, investor meetings, or other traditional marketing, and typically do not require management lock-ups or limitations on conducting other financings.
Disadvantages to ATMs
Limited capital raising: Under current rules, the maximum amount that can be raised under a Canadian ATM is capped at 10 percent of the issuer’s market capitalization. As a result, ATMs are not well-suited to raising large amounts of capital in a short period of time.
- Sales of shares are capped: The number of shares that can be sold on a given trading day cannot exceed 25 percent of the trading volume on that date. Sales are therefore dependent on the general liquidity of the issuer’s stock in the market.
- Timing: Launching an ATM program can take longer than more traditional financings as the issuer must have a base shelf prospectus in place and obtain an exemption order from the securities commissions. The issuer may also require a translation exemption in Quebec.
- Market overhang: Markets may view the ATM program as an overhang in the stock market, which may have a negative impact on the issuer’s market price.
What to Look for When Establishing an ATM
If a mining issuer is interested in establishing an ATM program, there are several things they should look for:
- Ensure that the issuer has a current Annual Information Form in place and has a receipted base shelf prospectus in all provinces which specifically permit ATM offerings. The time taken to obtain a receipt for a shelf prospectus can have a significant impact on overall timing for an ATM facility.
- Understand the issuer’s liquidity and the limitations on sales. An ATM may not be suitable for a junior issuer with a low market capitalization and limited liquidity due to legislative restrictions on the overall size of ATMs and on sales volumes.
- Work with an advisor that has a dedicated trading desk—this is the key to successful ATM financings.
Proposed Amendments to ATM Distributions
In May 2019, the Canadian Securities Administrators' proposed amendments to the rules applicable to ATM distributions. If implemented, the proposed amendments will streamline the process for establishing an ATM, resulting in faster and less costly access to capital for issuers and should result in an increase in the frequency in the use of ATM distributions in Canada. If this happens and the interest in ATMs continues to grow, mining companies will have another tool in their kit of financing options.