EDITORIAL PAGE — Leaving the nest

For years, officials of the Vancouver Stock Exchange (VSE) have bemoaned the fact that many of its most successful junior companies have flown the nest and ended up on the big board in Toronto. The Alberta Exchange, which spawned such successes as Bre-X Minerals, no doubt can commiserate.

But the VSE’s new president, Michael Johnson, reportedly accepts this pattern as a fact of life. After all, as he points out, it is a credit to the VSE when juniors that it helped launch become institutional darlings on Bay Street.

Even so, it is becoming apparent that the Toronto Stock Exchange (TSE) has become much more than an upscale coop for golden geese hatched on western markets. It has become a venture capital market in its own right and, in particular, a world leader in supplying capital for resource development. It is also the second most active stock exchange in North America, as well as the 10th most active exchange in the world. Considering the size of Canada’s population (30 million), this is no small achievement.

The VSE, however, is still holding its own despite this increased competition. Strong investor interest in resource stocks, combined with reasonably strong metals prices, enabled it to eclipse several annual records last year, including volume and value of shares traded and money raised by listed companies. Several monthly, daily and weekly records fell during the year as well.

In 1996, the volume of shares traded reached 8.3 billion, surpassing by 35% the previous (1995) record of 6.1 billion shares traded. Last year’s value of $12 billion, which crushed the previous record of $6.8 billion (traded in 1992), was up 87% over 1995’s value of $6.4 billion.

A record $2.1 billion was raised on the VSE last year — a whopping 82% increase over 1995 levels. Of this total, $1.5 billion was raised by mineral exploration companies.

The TSE, meanwhile, has been no slouch in taking advantage of increased investor interest in resource stocks. Two of the four most active issues in 1996 — Barrick Gold and Bre-X Minerals — fell into this category.

The past year was the biggest value year in the TSE’s history, at $301.3 billion. It was also the biggest volume year, at 22.3 billion shares. The TSE posted a record close of 6,018.65 on Nov. 28, as well as 64 record index-closes during the year. It also posted its second-highest number of new listings: 173, surpassed only by the 180 companies newly listed in 1987.

Both the Vancouver and Toronto exchanges attracted the interest of foreign companies aiming to increase their profiles, as well as their treasuries.

African gold-miner Ashanti Goldfields, for example, secured a TSE listing last year. The VSE, meanwhile, listed several Australian juniors which are exploring mineral projects at home and abroad.

All this goes to show that Canadian markets are benefiting enormously from the globalization of the mining industry. Which begs the question — how long will the good times roll?

Metal prices, which reflect supply and demand fundamentals, will no doubt affect market conditions in the years ahead. But another, perhaps more important, factor to consider this year will be political risk.

It is our bet that TSE-listed resource companies, now widely held in pension plans and equity funds, will be increasingly cautious about country risk in 1997, particularly in light of recent events in Indonesia, Peru and elsewhere. It is also our bet that the VSE, which has traditionally specialized in risk capital, will be more than happy to pick up any slack.