The TMX Group (Toronto Stock Exchange [TSX] and TSX Venture Exchange [TSXV]), and more generally Canada as a jurisdiction, have obvious attractions for the industry. Every year since 2007, the value of transactions on the Toronto Stock Exchange has reached $350 to $450 billion,1 and between 2007 and 2011, Toronto provided the mining sector with $220 billion in equity financing – more than one-third of the world’s total.2 The TSX in this regard is far ahead of its closest rival, the London Stock Exchange (LSE), which claimed 11.6 percent of the world total in 2011,3 boosted essentially by the registration in London of Glencore. In 2011, the TSX and TSXV handled 90 percent of the shares issued by mining companies throughout the world.4
According to Canadian government sources, the head offices of more than 75 percent of the world’s mining exploration or operating firms are located in Canada,5 and almost 60 percent of them are registered on the TSX,6 even though their capital is not necessarily Canadian in origin. In fact, the capitalization of many of these entities comes from Australia, Belgium, Sweden, Israel, the United States, or from tax havens such as the Virgin Islands. Strangely enough, many mining exploration firms registered in Toronto do not hold a single mining claim on Canadian soil.
As a financial centre, Toronto provides the world’s extractive industry with six substantial advantages. First, the TSX makes it easy for investors to speculate. Second, through generous federal and provincial tax incentives to the extractive sector, Canada specifically encourages investors to put money in mining companies. Third, Canadian lawmakers and political leaders have clearly demonstrated that they have no intention of interfering with Canadian-registered corporations accused of abuse or even crime outside Canadian borders. Fourth, the legal right to “reputation” has a history of taking precedence over the legal right to “freedom of speech,” which means that critical voices in Canada are often threatened with costly libel suits. Fifth, rather than remaining neutral, the Canadian government acts as the industry’s advocate before Canadian public opinion. Sixth, the Canadian mining industry abroad benefits from the active assistance of Canada’s diplomatic services and development agencies.
Any mining concession obtained anywhere in the world, even under the most dubious circumstances, is considered worthy of listing on the Toronto exchange. As the world’s mining capital, the Toronto exchange is permissive in the extreme; and the information disclosure rules applying to companies listed on the TSX are ambiguous enough that they encourage greater speculation than do stock exchanges in the United States, for example. Canadian legislation underwrites investment in mining through the awarding of substantial fiscal incentives while it makes civil and criminal legal action against companies very difficult. These “advantages” have made Canada into a key platform for the extractive sector, which, from the Toronto Stock Exchange, controls a global spectrum of exploration and operation activities that generate record profits, often at the cost of serious humanitarian and environmental consequences.
Particularly over the past two decades, Canada has emerged as a judicial and regulatory haven for the world’s extractive industry. The country’s jurisdiction provides unofficial cover for corporations that may be involved in shameful controversies abroad.
1. Unlimited Speculation on World Resources
First in the substantial advantages Canada provides to the world’s extractive industry is unlimited speculation on world resources. In attempting to deal with market crises and scandals that have regularly arisen in Canada during the twentieth century, Canadian stock exchanges repeatedly have been faced with a problem equivalent to squaring the circle. How do they persuade companies in search of risk capital to register with them, while at the same time protecting investors against the abusive claims to which they are exposed in the absence of an effective outside authority such as a government regulatory agency? Smooth talkers try to drive up the “value” of shares in the eyes of investors; meanwhile, investors hope to invest in projects of substance. The stock exchange’s balancing act is all the more unconvincing in that the actors involved have contradictory interests. Yet only the good faith of these actors can ensure that institutional rules are followed: they are supposed to be “self-regulated.” Often mentioned by the various special-interest groups involved in the process, “self-regulation” is in fact the only distinguishing factor between the functioning of the stock exchange and that of a casino.
Resources or Reserves: A Fortunate Ambiguity
The spectacular Bre-X fraud which began on the Calgary Stock Exchange in 1997,7 as well as several suspect cases on the ultra-permissive Vancouver exchange, showed how pointless were the regulations in effect on Canada’s stock exchanges and how feebly they were applied. Until the late 1990s, companies listed on Canadian stock exchanges were given complete freedom to shroud the true nature of their assets in dense fog. In their reports, for example, they were not required to distinguish between “reserves” (precise estimates of quantities of actually exploitable ore in a deposit) and “resources” (gross estimates of the ore of a claim). By publicizing figures that represented “resources” rather than “reserves,” they were able to inflate the potential of the deposits on which the share value of their offerings was based, attracting investors to business opportunities that appeared lucrative but were illusory. The “qualified person” responsible for validating information provided by companies listed on the stock exchange was not subject to the slightest degree of supervision by a professional corporation; public regulatory agencies were both indulgent and negligent; and fraudsters enjoyed a high degree of impunity, as the public learned in July 2007 when Bre-X vice-president John Felderhof, accused of insider trading and publishing false news releases, was acquitted by a Superior Court of Justice in Toronto.8
In the early 2000s, after the Bre-X scandal, the Toronto Stock Exchange became the central exchange for Canadian-registered mining stocks. (Today, the extractive companies known as the “majors” are listed on the Toronto Stock Exchange, now part of the TMX Group after the merger of the Montreal and Toronto exchanges, while the “juniors” appear primarily on the TSX Venture Index, a capital market made to measure for cash-strapped companies that emerged in 1999 from the ashes of the Calgary and Vancouver stock exchanges.) In response to sharp international criticism, the TSX adopted a more rigorous descriptive and supervisory methodology. New measures were introduced: more stringent standards for disclosure (proposed in July 1998 and in force by February 2001);9 standards and guidelines for valuation of mineral properties (published in February 2003);10 and revised and updated mining standards guidelines (effective December 30, 2005).11 These new standards required Canadian mining companies to make a clear distinction between “resources” and “reserves” and to include this information in documents released to the public. The new guidelines also defined a number of technical obligations concerning the nature of a company’s investments, including in what way a “qualified person” might accept, or propose the acceptance of, the information made public by a company.
From then on, rather than being presented in a uniform manner, the ore discovered in a deposit was to be broken down into categories and subcategories, ranging from those with the most detailed criteria to those with the least. One would think that this would make it possible to obtain a clearer understanding of a given company’s assets. However, data on the “resources” a deposit may contain, even before a decision has been made to exploit it, are now presented as “inferred,” “indicated,” or “measured,” depending on the quality of the information used to assess their quality. “Reserves” now refer to the ore that may actually be extracted from a mine as indicated