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canada competes

Banro Corp. operates a gold mine in a remote mountain region of the Democratic Republic of Congo.Philip Mostert

There are few business sectors where Canada can claim global dominance, but as a centre for mining development, it is an industry leader.

The Toronto Stock Exchange (TSX) and its small-cap partner, the Venture Exchange, are home to 58 per cent of the world's public mining companies and raised 36 per cent of global mining equity finance from 2007 through 2011. Collectively, they are first in the number of listed mining companies with nearly 1,700, well ahead of competitors, the London Stock Exchange and Australia's ASX, according to the TSX.

No other place has the same concentration and depth of services and financial market sophistication to support mining finance and development.

How does Canada do this? According to Kevan Cowan, president of TSX Markets, Canadians have a long history of participating in early-stage mining investments and a "whole ecosystem" has developed to support the industry.

"We have a tremendous network of industry players. Our legal services are the best expertise in this sector worldwide, together with a huge pool of geologists, engineers and mining entrepreneurs, as well as sophisticated capital markets for mining finance. We are a world ahead of our competitors."

This is an investment landscape transformed from just over a decade ago when the Venture Exchange was created in 1999 from the merger of Canada's regional exchanges – the former Vancouver, Alberta and Winnipeg stock exchanges and the small-cap portion of the Bourse de Montréal. Although investment in small-cap mining on the Vancouver and Alberta exchanges was accepted to be an adventure, the Bre-X gold scandal of 1997 – when Calgary-based penny stock Bre-X fraudulently inflated itself to a market value of $6-billion through falsified mining samples – signalled the need for reform.

Innovation and best practices have since established a world-beating financial and mining centre. The creation of a two-tiered public market, with the Venture Exchange as the home of small-cap miners who can graduate up to the TSX, is now widely emulated. Stronger listing requirements for public companies have contributed to greater clarity and pricing of risk, enabling massive growth of the public mining market. Stricter requirements for reporting on mineral resources by mining companies – Canada's widely admired National Instrument 43-101 – have been critical in raising public confidence.

The Canadian market is now far more international – as a centre to raise mining finance and as an institutional platform for foreign companies that choose a local listing. Many have their offices and management teams outside Canada, in such places as Australia, Latin America and South Africa. Companies from the United States and Britain look to a Canadian listing to raise financing for projects with higher risk.

A national advantage rests in the junior sector – the small producers and penny stock prospecting and exploration companies that play a role as the feeder system for new mine development, discovering and selling on viable projects to established companies or developing the projects themselves and graduating up the ranks to mid- and large-cap status.

It is a business model that has produced uncharacteristically Canadian risk taking – most junior prospecting and exploration companies lose money or go bust – and dynamic wealth creation. Of the top 10 miners on the Venture Exchange, most either did not exist a decade ago or were tiny companies with few assets. Since 1999, 451 companies have graduated from the venture exchange to the TSX main board, representing market capitalization of $87.6-billion, and 236 were mining companies.

For a country accused of lacking U.S.-style risk taking and dynamism, Canada is succeeding in a volatile business sector. According to Mr. Cowan at the TSX, Canadians do have an appetite for risk.

"Risk taking and entrepreneurship is very much part of Canadian culture when it comes to mining. There is a romance and a history of going out there with a mining pick, prospecting and developing mines, as well as a tradition of participating at the retail investment level. There is a large and sophisticated investor base. The difference now is that the reach is global, not just local."

Of the nearly 10,000 mining projects held by listed companies, half are outside Canada. They are frequently in remote and unstable jurisdictions. Canadian miners, says Mr. Cowan, "are very good at gauging and navigating risk."

Risk factors globally range from weak governance and adherence to the rule of law to civil unrest, irregular influence, contract breaking and nationalization. It is an intrepid journey for junior miners to discover and prove the commercial feasibility of mineral resources and move successfully through the project cycle from financing and construction to operation. Few make it.

If there is one company that exemplifies the outsize risk profile of junior miners, it is Toronto-based Banro Corp., which is developing gold mines in the Democratic Republic of Congo.

First securing mine rights in 1996, it has experienced regime change, two civil and regional wars, the threat of contract breaking and very recent rebel activity.

Just two days ago, rebels known as M23 captured the city of Goma in the province neighbouring the one the mine is located in, and announced their intention to take more of the country.

Fifteen years elapsed between when Banro entered the country and its first gold pour in October, last year. Along the way, it has spent $291-million, including trucking equipment and supplies overland, and built 50 kilometres of roads to reach its mine site on a remote mountain top in the jungle. A model of vertical integration, it is responsible for its own power and water supplies, runs a logistical supply chain stretching 2,500 kilometres through three countries to ports on the East African coast, and has trained a large local work force of nearly 1,000, according to the company.

In an area devastated by civil war and still afflicted by armed conflict, it runs its own foundation that has built schools and health posts, funded a hospital for victims of sexual violence, rehabilitated basic infrastructure and complied with the requirements of the Extractive Industries Transparency Initiative (EITI), which was designed to ensure resource wealth does not fund armed conflict. The experience, says Banro chief executive officer Simon Village, has been "humbling."

Who says Canadian business is risk averse?

Canada as mining centre

Percentage of the world's public mining companies listed in Canada: 58

Canada's global ranking as home to publicly listed mining companies: 1

Number of mining equity financings done on the TSX and TSXV in 2011: 2,021

Percentage of all mining equity financings in that year: 90

Global rank for mining equity finance by value in 2011: 1st

Number of listed mining companies: 1665 *

Number that have mines in production or under development: 326

Number of mining projects held by listed companies: 9,300

Percentage of these projects that are outside Canada: 47

Number of new mine listings in 2011: 201

Value of equity capital raised in 2011: $12.5-billion

Number of analysts covering listed mining companies: 200

All data 2011 unless otherwise stated.

* First quarter 2012

Banro Corporation

Year founded: 1996

Year acquired first mining license in the ex-Zaire, now Democratic Republic of Congo: 1996

Number of civil and regional wars in the Congo since acquiring mining license: 2

Number of years between acquiring mining licenses and starting gold production: 15

Kilometres of road built to reach mine site on a remote mountain top: 50

Kilometres of public roads rehabilitated to reach mine site in eastern Congo's Sud Kivu province: 550

Length of supply chain to reach nearest port by road transport: 2,500 km

Number of other countries traversed to reach nearest port: 3

Minimum time required for truck transport to reach mine site from nearest port: 2 weeks

Number of shipping containers of diesel fuel required to be trucked in each day to run company's own power generation plant: 2

Value of diesel fuel based power generation as a portion of gold production cash costs: $150/oz.

Number of ounces of measured and indicated gold on company's properties: 7.2 million

Number of local employees: 976

Number of people employed by the Banro Foundation in CSR activities: 10

Value of local expenditure on charitable activities by Banro Foundation to 2011: $4.1-million

Value of investment in local roads, bridges, schools, churches and public facilities: $16.6-million

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