MacDonald Mines is pleading with politicians to clamp down on high-frequency trading and encourage wider adoption of resource stocks by financial institutions to save the junior mining industry.
McKinnon made the comments on Wednesday when it updated its “Ring of Fire” drill program near James Bay. The junior is exploring for copper and zinc (VMS), nickel and chromite in the James Bay lowlands of northern Ontario.
Kirk McKinnon, President and CEO of MacDonald Mines, says investors are moving to high tech and bio tech industries since the rules within the junior sector are tilted towards “large and wealthy”.
“[We are] not sure whether our political leaders realize or care that the disappearance of such a large amount of these companies will constitute major layoffs in personnel and the country will likely lose key exploration scientists such as geologists and geophysicists whose experience, as well as the ongoing opportunity for experience, will be gone forever,” says McKinnon.
McKinnion admits solutions and causes are complex, but some changes would help, such as the end of high frequency trading and making it easier for bank customers to buy a small portion of their portfolio in junior exploration stocks.
The markets have been tough for juniors. The S&P/TSX Venture Composite Index closed Friday at 1,240.25, hear its 52-week low of 1,153.90.
Here are McKinnon’s comments within the company’s drill program update:
“As we enter 2013, MacDonald Mines believes it is important to provide a current backdrop for junior mining exploration companies. We find it extremely ironic that both the Prime Minister and the Ontario Premier have outlined natural resources as a prime catalyst for growth in the country and in the province of Ontario respectively. Specifically, Premier Dalton McGuinty outlined the James Bay Lowlands and Natural Resources as a prime catalyst for growth within the province. With this as a backdrop, we wonder why large trading institutions are allowed to impact junior mining stocks with high frequency trading (as profiled in the Financial Post, October 10, 2012 and the Huffington Post) and also receive trading credits from the TSX in return for placing bids. We are aware high frequency trading is active in the United States but has been banned in some jurisdictions. It has less impact in the United States because of the sheer critical mass in the number of stocks and the number of shares in their trading jurisdictions. Compounding this, large Canadian national banks have certainly discouraged, and all but disallowed, any trading in junior mining stocks. This makes it extremely difficult for their clients to even consider these stocks as part of their overall portfolio or as opportunities for making money. We realize that exploration stocks are high risk and do require some expertise and insight on the part of shareholders but they can also play a role in a balanced portfolio where it constitutes a small percentage of the total investment.
So what is happening to junior exploration companies? In capsulated form, financings are becoming increasingly difficult to arrange, the stocks are at much lower prices versus historical levels; mostly because credible information and exploration success is not resonating and consequently the junior resource stocks have little or no resulting upward movement. The consequence of this is that much needed financings for exploration activity are now being transacted at historical low prices, creating an environment of super-dilution and a growing lack of interest for investment in this sector. The result: investors are moving away to similar types of investment opportunities in the high-tech and bio-tech industries.
There are dire predictions that over half of the junior mining companies will disappear within the next few years (see articles from mining industry analysts and writers Brent Cook and John Kaiser) MacDonald is not sure whether our political leaders realize or care that the disappearance of such a large amount of these companies will constitute major layoffs in personnel and the country will likely lose key exploration scientists such as geologists and geophysicists whose experience, as well as the ongoing opportunity for experience, will be gone forever. Equally important, Canada will lose a significant portion of an industry whose participants today are recognized as the world’s best.
We have seen and heard comments from both the OSC and IROC. These have been bolstered by a number of newspaper articles and they all allude to or say one thing – the playing field is not level and the large and wealthy have a decided edge. We are seeking to nurture a healthy equitable business environment for all potential shareholders, not one that favors a chosen few.
Most discoveries come about through small exploration companies as they are more nimble, and focus solely on discovery. If they disappear, so will this focus. So here is the question: How can a business sector that is being this decimated be the prime driver for growth in Canada and the province of Ontario? It won’t be and this sought after exploration success will significantly diminish. We could go on at great length but the solutions to arrest this problem could be quick and relatively easy:
1. Stop the high frequency trading,
2. Do not allow allocation for bid credits,
3. Allow easier access for bank customers to buy a small portion of their portfolio in junior exploration stocks,
4. Mandate that the banks have their analysts look at these smaller companies with the objective of grading and rating them and not just a singular focus on the large, mature mining deals. This would enable clients and potential investors to better evaluate stocks, companies and projects in the junior mining sector for consideration as part of their portfolios.
The Federal Government could look at increasing flow-through tax relief, which today is an excellent stimulant for exploration, to bring more focus back to this important exploration sector. We should also look at disallowing short selling for all stocks less than one dollar. It is important that investors be made aware and have some understanding of what companies such as MacDonald Mines are facing as we strive continue to develop our projects. Hopefully these comments will resonate, for they are indeed relative to the growth of the country and the province of Ontario.
Image uploaded to Flickr Creative Commons by El Bibliomata. Chart from TMX Group.