Terry Lynch of Save Canadian Mining on How the Repeal of “Tick Test” Negatively Impacted the Junior Mining Sector
Gerardo Del Real: This is Gerardo Del Real with Resource Stock Digest. Joining me today is the founder of Save Canadian Mining, Mr. Terry Lynch. Terry, how are you today?
Terry Lynch: Gerardo, I'm great today. Great to catch up again.
Gerardo Del Real: We spoke a few months ago when you launched this initiative. For those that aren't familiar, I would love for you to provide a brief overview of what the mission of Save Canadian Mining is. And then I want to talk about the progress, because it's been pretty substantial. You've had some big names, a lot of support, and rubber is hitting the road, frankly. I want to talk about that. But again, for those not familiar, what is Save Canadian Mining?
Terry Lynch: Yeah, Gerardo. Let's start at the basics. Basically that the fundamental thesis is that the junior mining market, stocks have been decimated in these last several years. Our view is, and it's backed by solid research, is that this is not a reflection on the companies themselves, per se. It's really a structural problem. Our view is that in October 2012 they changed a securities rule that had been in place for a 142 years in Canada. This rule was called the "tick test". The idea was you could only short a stock if the previous tick was up. In other words, you couldn't short a stock on the downtick.
This was a sort of a fundamental thesis that was in place, not just in Canada, but pretty much Australia, Europe, the United States. But when they allowed algorithmic trading, they got rid of this rule. It was an inadvertent rule change. They didn't know how to have a consolidated tape at the time. So they couldn't figure out how to technologically keep it together. They basically said, "Oh, we got this study from Harvard that says short selling doesn't impact these markets in any event and we're okay." Well that turns out to be complete crap, to be honest with you.
So we just released yesterday a very significant research piece that we had done with a company called Murenbeeld. Murenbeeld is fairly prominent, mostly in the gold space, but a very high-end, sophisticated research house. It's been around for a long time and they're very well respected. We commissioned them to do some research for us to prove this up so it wasn't just Terry and a gaggle of cheerleaders.
We basically looked at the data and the data is compelling. I'll leave you with this one visual for the listeners to get is that the day this rule change came into play – call that day one – well the stock market index was 100 and the commodity index was 100. Now today, in February of this year, the commodity index is down 7%. So it's off a little bit. The commodity index is down 7%. The stock index is down 65%. So think of that. Just crazy. The stock index is 65% less. It's never been this deep before. And historically, typically the stock index is slightly above to a little bit more than above the commodity index.
What we have here is a structural problem, not a mining specific problem. We need to fix the structure first to really repair the damage to our industry. That's really what Save Canadian Mining is trying to do, try to expose this problem to the government to say, "Hey guys, this isn't something that you caused, it isn't something that you sought out do, but this has been the result so we've lost a ton of investment in mining, we're losing mining jobs all over the place." It's particularly impactful on our remote communities where a lot of the mining takes place. This is an opportunity for us to right this wrong and let's get to it. That's basically what Save Canadian Mining's all about.
Gerardo Del Real: Let me read off some of the main points from the research piece.
As of January 2020, as of last month, there was a 60% gap between the metals and minerals index and the TSX Venture Exchange. That represents the largest gap in at least 12 years. H
ere's another one, since October of 2012, when the "tick test" was removed, there has been a decrease, obviously, in issuers listing on the TSX and TSX Venture Exchange.
The number of mining companies listing on each recently reached its lowest number in 10 years. Equity capital raised by junior mining companies on the TSX Venture Exchange is a fraction of what was raised prior to 2012.
During the recession of 2008-2009, equity raised by junior mining companies on the TSX Venture Exchange averaged $2.9 billion, which represents 42% more than equity raised by the same sector in 2019.
And lastly, between 2011 and 2018, there was a 62.5% drop in spending on local economic activity in Canada by Canadian mining companies.
Now I'll play devil's advocate a bit and say that there's been less issuers because there was a large misallocation of capital during the last bull market. I think we could both agree that's probably true, but I don't believe that comes anywhere near explaining the divergence in capital raised and issuers during the recession of 2008-2009 and what was raised by this sector in 2019, where things were relatively healthy. Right?
Terry Lynch: Yeah. Well that's the thing. I think you hit it on the nail on the head. The commodity decline is probably reversed and trending north where we're trying to get into a better commodity cycle. Typically this is when the equity raises start to pick up and people start to invest. But that hasn't happened this time. I think the reason is before us, it's basically a structural reason. It's super difficult to motivate investors to invest into this wall of selling. Short of having spectacular, Great Bear like discoveries, even really good news doesn't get rewarded. It's tough to get investors motivated in these circumstances. But I think the good news is, in my view, that the governments recognize this is a problem and I think there's going to be a serious move to address it.
Gerardo Del Real: Let's talk about that. I know that you're having high-level, behind the scenes discussions. I know a lot of those are confidential, but I would love for you to provide some context, Terry, as to what you're hoping to accomplish. Let's not get into promises or pie in the sky things. Let's talk about what you're hoping to do.
Terry Lynch: Yeah. The first thing we wanted to do was to make sure they understood the issue. Obviously we're a volunteer organization and nobody's getting paid to do this. It's all been done by sort of everyone's supporting the time and money into help us move forward. We've been focusing in on Ontario to the most part. The reason why is in Canada, Ontario is obviously the biggest province, the most populous province, and so it has the most impact. If you are trying to do something nationally, if you don't get Ontario, it doesn't really matter, you're not going to succeed. You got to get Ontario then of course you have to get the other provinces on side.
But generally speaking in this sector, the securities sector, because the Ontario province manages the Toronto Stock Exchange and the Canadian Stock Exchange, the two biggest exchanges in the country by far, Ontario has a disproportionate role. You got to get them. Our focus was, from an economic efficiency perspective, lobby Ontario government to make sure that they understood the problem and the opportunity.
I can say that we've been very successful in getting audiences with the government at senior levels, at ministerial levels of the Minister of Small Business, the Minister of Mines, Minister of Finance, speaking to them and making them aware of the problem. I would say the government is now fully aware of the issue and they're quite concerned about it. It wasn't something that they had seen before and now they realize, wow, this is a big issue.
So now, it's going through the process, as things do with government deliberations, as to how do you solve it. I think that's where we're at now. We're working with the government to work within their system and structure and timing to find an appropriate way to solve the problem.
I feel super encouraged personally as an ambassador that this is going to come to fruition. I don't see it as an if thing anymore. I see it as a when. Will it happen? Earliest could be sort of fall of this year and probably latest is spring, summer of 2021. But I believe this will change and this will have a phenomenal impact, I believe, on junior money.
Gerardo Del Real: I think there's two points worth making, and correct me if I'm wrong, Terry. But the first one is obviously this has an economic impact in the hundreds of millions of dollars, both directly and indirectly. And then the second one is you're not going to the government and asking for tax breaks. You're not going to them and saying, "We want you to subsidize this in any way." All you're asking for is a reinstatement of something that was the norm for over a century. Correct?
Terry Lynch: Yeah. And that's the really amazing thing. The government guys jokingly say, "Well, you're the first guy here that's not asking for money from us." I'm saying, "Guys, I want to give you money because I tell you, if we can get these rule changes, investors will come back because there'll be a once in a lifetime opportunity in addition to obviously the commodity cycle turn to get in on these super bargain deals across the board and ride the revival."
Investment will happen and I think government recognizes that would be a good thing for the economy in Ontario and across the country. I think they'll find their way through to supporting this.
Gerardo Del Real: Well, good work, Terry. I know both myself and Nick Hodge, we co-own Resource Stock Digest, are happy to support the movement. You have incredible support and that includes the Ontario Mining Association, the Ontario Prospectors Association. Sprott Mining's involved, McEwen Mining's involved, Cisco Mining's involved, the TSX Venture Exchange and I know there are several other junior mining companies and individuals that have been extremely supportive. But a credit to you and your team for kind of leading the charge.
Fingers crossed because I think this can have a significant effect on trading here and speculating and what frankly is one of the highest risk, highest reward sectors as is. But this can help level the playing field and I think it's important. Anything else you'd like to add, Terry?
Terry Lynch: Yeah, what I would say to your listeners, if you're a junior mining investor, by all means, please come by savecanadianmining.com and sign in, show your support by registering. If you're a junior mining company, sign in and show your support and consider donating to the cause because – obviously while we're not paying Terry or any of his friends – lobbyists and agencies and stuff that are keeping this front of the press and front of the government mind, they do cost money. Not a lot, but we do need to continue to sort of press the case probably for the next 8 to 12 months to make sure we get this across the finish line because like I've been saying to the people that have joined us, the Eric Sprotts and Sean Roosen, Rob McEwen, these types of people, they get it because they recognize wow, they've got huge investments in junior mining and obviously this will be a total game changer.
It's the best IRR these companies could spend is to get behind Save Canadian Mining because it's the reason why it's going to be different this time, Gerardo, because I'm out there, I'm obviously a junior mining company and people say, "Well why should I invest in that? Why is it going to be different this time?" That's the question we all get. And you know what? It's a tough one. If you can't speak to something structural like this because you know what? Up until the last several years, we keep looking for sunshine out at the end of this cave we're in and quite often it's the train that's running us over. But this time I really feel it is different. That's a great message to take to our investors because God knows they've suffered enough and now it's a chance to get some retribution to get back in there and I think make some of their money back and then some.
Gerardo Del Real: Well said, Terry. Thank you so much for your time and I can't wait to have you back to get further updates. Thank you.
Terry Lynch: All right. Thanks, Gerardo. Cheers, bye.
Gerardo Del Real: Cheers.