TSX issues guidance for companies seeking an initial listing; Comments on what constitutes “economically interesting grades”

November 26, 2013

New guidance for issuers seeking to list on the Toronto Stock Exchange (the TSX) was issued by the TSX on November 7, 2013 (the Staff Notice).  The Staff Notice provides guidance with respect to: (i) issuers applying to list under the Mineral Exploration and Development-Stage Companies category; (ii) financial statements submitted to the TSX in support of an original listing application; and (iii) the pricing of stock options, rights and other entitlements granted by an issuer prior to its initial public offering (IPO).

With respect to Mineral Exploration and Development Companies, the Staff Notice outlines certain considerations that will be taken into account in assessing whether a mineral project qualifies as an Advanced Property.  Emphasis is given to infrastructure considerations for certain projects (i.e. commodities typically shipped in bulk such as coal, iron ore, all base and precious metal concentrates, and industrial minerals, such as sand, gravel, limestone, commercial clay, and gypsum) located in remote or isolated areas that are not readily accessible (either by road, railway or port).  The Staff Notice states that for such projects to satisfy the TSX requirement of having “economically interesting grades” the assumptions, plans and cost estimates for infrastructure should ideally be outlined in a technical report prepared by an independent qualified person in accordance with National Instrument 43-101 – Standards of Disclosure for Mineral Projects and supported by a Preliminary Economic Assessment, Pre-feasibility Study or Feasibility Study (as such terms are defined in “Estimation of Mineral Resources & Mineral Reserves best Practice Guidelines (May 30, 2003)” – Adopted by CIM Council on November 23, 2003). The Staff Notice goes on to state that where an issuer’s technical report does not address infrastructure, alternative supporting information may be accepted by the TSX, after consultation with the TSX, to satisfy the “economically interesting grades” requirement.

The guidance in the Staff Notice relating to financial statements of issuers seeking to list on the TSX, includes (i) for companies using the forecasting profitability category, the TSX will generally require sponsorship if the audited forecast is not published in a prospectus or other publicly disclosed document of the issuer; (ii) for issuers required to submit pro forma financial statements, the TSX may require adjustments to such statements and, in the case of pro forma financial statements that are not publicly available, the TSX may require the issuer’s sponsor or auditor to comment or provide comfort on any adjustments; and (iii) in addition to IFRS, for SEC issuers, in certain circumstances the TSX will accept financial statements prepared in accordance with Generally Accepted Accounting Principles (GAAP) in the United States and in certain circumstances may consider accepting financial statements prepared in accordance with GAAP of other jurisdictions.

The pricing of stock options granted prior to an IPO was also discussed in the Staff Notice.  Options granted within the three months immediately prior to the filing of a preliminary prospectus for an IPO should be priced at or above the IPO offering price. If not, such options will likely be required to be cancelled, forfeited or re-priced to the IPO offering price as a condition of listing.

DISCLAIMER: This publication is intended to convey general information about legal issues and developments as of the indicated date. It does not constitute legal advice and must not be treated or relied on as such. Please read our full disclaimer at www.stikeman.com/legal-notice.

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