On December 13, 2012, Fasken Martineau issued a bulletin in which it revealed that the TSX had declined to approve a listing application by several companies with properties in the Ring of Fire and in Northern Quebec on the basis that their projects did not qualify as an “Advanced Property” i.e. did not have “economically interesting grades” because of concerns about the availability of infrastructure. We pointed out that the TSX had taken the position that no company which has to ship its products in bulk would be eligible for a listing unless there was a clear indication of how those products would be shipped to market and some assurance provided that the necessary roads, rail links or port facilities would be constructed.
Fasken Martineau asserted that the creation of infrastructure is one of many issues facing mining companies which have an impact on project economics, including commodity price risk, metallurgical issues, taxes and other government policies, and that, provided that such risks were appropriately disclosed, there was no valid reason to apply a blanket prohibition on the listing of companies solely on the basis of lack of infrastructure. Fasken Martineau indicated that it would be helpful for the TSX to seek comments from the mining industry on this issue, thereby inviting a clarification of the TSX position.
On November 7, 2013, the TSX issued a staff notice (the “Notice”) providing guidance with respect to the meaning of the “economically interesting grades” requirement for Advanced Properties. The Notice states that applicants for listings based on commodities to be shipped in bulk (such as iron ore, coal, base and precious metal concentrates, and industrial minerals) with projects in remote or isolated locations that are not readily or easily accessible by existing roads, railway or port should have a plan to develop or obtain access to the required infrastructure together with a cost estimate, and this plan must not be unreasonable. In assessing “reasonableness”, the Notice states the TSX will consider (i) whether the infrastructure has been built over similar terrain and in similar circumstances in the past and the costs associated with building such infrastructure, (ii) whether the infrastructure will be unconventional such as a barge canal or a slurry pipeline that brings concentrates from mines to smelters, and (iii) the assumptions in respect of the funding of the required infrastructure, and in particular, whether the applicant will fund the infrastructure or rely on third parties to fund or develop it, provided that while the cost associated with the development of any necessary infrastructure should be taken into consideration to assess the economic viability of the project, TSX does not require that the applicant have the necessary funds on hand to develop the infrastructure as a condition of listing.
The Notice states that generally, a project that is located in a remote or isolated area with either a Mineral Reserve or Mineral Resource (as defined by the Canadian Institute of Mining, Metallurgy and Petroluem) will qualify as an Advanced Property, but infrastructure will remain an important aspect of that determination. In such instances, the existence of a Mineral Reserve must be demonstrated by at least a Preliminary Feasibility Study which accounts for the cost of developing the required infrastructure if such cost is to be borne by the issuer. Otherwise the QP should state an assumption that third party funding of such cost will be available and support such assumption on a factual basis.
By putting forth a “reasonableness” standard in determining whether a property qualifies as an Advanced Property, the TSX is attempting to reassure the market that there is no blanket prohibition on listing “bulk commodities” companies who cannot demonstrate that the necessary infrastructure will be available, and that the listing of such companies would be considered on a case by case basis in accordance with the criteria set out in the Notice. While this is helpful, the fundamental issue which remains, as per the Fasken Martineau December 2012 Bulletin is whether the availability of infrastructure is a risk factor among many others, and should simply be a matter of adequate disclosure. Fasken Martineau offers these views as a contribution to what should be an ongoing discussion of a subject that is of considerable importance to all parties concerned in the development of resources in areas of Canada including the Ring of Fire and northern Quebec.