Written by Darrell R. Peterson and James Bartlett
Canada is recognized as the world's leading capital market for natural resource companies. Its stock exchanges boast over half of the world's public mining companies and over one-third of the world's public oil and natural gas companies. Canadian stock exchanges also present a recognized destination for foreign natural resource companies to raise capital—and function as a significant source of acquisition targets and merger partners for international major and mid-cap companies.
In conjunction with Thomson Reuters Practical Law, Darrell Peterson and James Bartlett of Bennett Jones LLP have published an informative paper providing a discussion of the factors which contribute to the prevalence of natural resource issuers on Canada's stock exchanges, including:
- How Location of Industry Peers Attracts Investment. The mining sector in Canada, while comprising approximately 10 percent of the principal exchanges listings (based on market capitalization), is in fact home to more listed mining companies than any other stock exchange in the world. This equates to 62 percent of the world's public mining companies being listed in Canada. Similarly, there are more oil and natural gas companies on the TSX and TSXV than on any other stock exchange in the world with 30 percent of the world's public oil and natural gas companies being listed in Canada.
- A Review of the Unique Listing Requirements of the TSX and TSXV. Listing standards for the Canadian stock exchanges offer financial tests specifically applicable to oil and natural gas and mining companies. These industry-based requirements can be particularly attractive to newly producing companies or companies in the exploration or development stage that may not yet be able to satisfy financial tests based on profits or revenue.
- How the Strength of Analyst Coverage in Canada Promotes a Well-Functioning Market. The analyst community in Canada is sophisticated with most banks and other intermediaries providing these services having a number of specialists on staff including specialists with oil and natural gas and mining training. The strength of analyst coverage of the Canadian natural resources market contributes to a well-functioning market with broadly disseminated analyst information.
- An Examination of the Sophistication of Canadian Institutional Investors with Natural Resources Knowledge. Canadian investors (both institutional and retail), trade natural resources equities at volumes higher than other industries listed on Canadian stock exchanges. While second to financial services on the TSX and TSXV in terms of market capitalization, natural resources accounts for the highest percentage of trading volume.
- How the Canadian Regulatory Environment Promotes Investment. Securities laws and regulations remain an important determinant of where securities are issued, how they are valued, who owns them, and where they trade. Issuers have an incentive to raise capital in jurisdictions who's regulatory regime facilitates a lower cost of capital. Overall, Canadian capital markets are efficient in many respects and measure up well when compared with those of other countries of comparable size.
Darrell and James' full paper is available here.