LETTERS TO THE EDITOR — Amended securities procedures

Some of us can recall the pre-Commonwealth boast: “The sun never sets on the British Empire.”

This country’s miners and prospectors are justified in boasting as well. Canadian geologists, engineers, promoters and service companies are active in locating and developing mines in more than 50 countries. (“The sun never sets” on Canadian miners, except in British Columbia).

These foreign mines, when they reach the operating profit stage, will pay around 22% of production in taxes to their respective host countries. Exploration, engineering and imported equipment will consume 10%, and 5% of production will go to shareholders.

The lion’s share (16%) of operating profits will go to the alien financiers who assembled the capital needed. Those financiers will not be Canadians. It doesn’t seem fair that the nation that provides initiative, expertise, seed money and technology must be content with some innocuous reward — exploration costs, consulting fees and a short leap in share prices. The organizations that focus our citizens’ savings toward high-risk mutual funds and companies involved in questionable developments are the various securities commissions, led by Ontario. The objective of “preservation of integrity of capital markets” has become a destructive preoccupation. While fees are constantly rising, efficiency is falling. Five years ago, the new-issue process of the Ontario Securities Commission (OSC) took three months, or two days per prospectus page. My friends tell me the current term is six months (four days per page).

In recognition of the impossibility of a 6-month drag in a market economy, the OSC will allow certain issuers to make end-runs around the approval system. They can unload paper by issuing a deposit receipt, with the paperwork to follow. This makes sense, since only 12.4% of individual investors have ever read prospectuses and only 3% claim to understand them. The tendency of securities authorities to focus on preservation has led to an unfortunate result — one law for the rich and another law for the poor. Examples of these ambiguous rules are:

– When a prospector sells shares to employees, he may be charged with “wash trading.” Yet when a giant Canadian conglomerate sets up a compulsory share purchase system for its employees, securities commissioners seem unable to act.

– If the directors of a money-losing junior declare dividends to help with their personal obligations, they are in serious trouble. Yet securities commissioners are forced to countenance similar behavior by directors of major companies.

For years, the OSC traditionally selected some knowledgeable mining person as one of its commissioners. Now the mining seat has been declared vacant, which can’t help Canadian financiers.

In some aspects, Canada’s securities commissions (especially in Ontario) deserve commendation. In a nation of eroding ethics, the OSC stands alone in its dedication to single-standard honesty.

This dedication to honesty must be severely tried. On the one hand, the OSC must cope with overpriced lawyers who seem to have abandoned their ethics in law school. On the other hand, it serves a government that is happily addicted to the numbers racket and to gambling joints and prefers high-risk betting on sports to participation in sports itself.

My advice to the OSC is relatively benign. With our track record, Canadians will likely develop 50 mines in the 50 countries where we are working. The total investment could be around $33 billion. The life-of-mine return on exported dividends, interest, etc., after tax can be another $33 billion. We can use the money.

We will need amended securities procedures to enable Canada to become a mineral financial capital in line with our capabilities.

Fenton Scott

Toronto