Confronting the potential extinction of a Canadian institution

To a packed crowd in Vancouver yesterday, veteran junior resource analyst John Kaiser gave a presentation hosted by AME BC entitled, Confronting the Potential Extinction of a Canadian Institution.

Here is a link to the 59 slide PDF presentation, courtesy John Kaiser.

Mr. Kaiser has been closely involved with Canada’s venture capital markets for over thirty years. In the 80’s and early 90’s, he was a research analyst at various securities firms focused on the junior resource sector. In 1994 he started his own newsletter, known as Kaiser Research or Kaiser Bottom Fish Report, that has earned a reputation for being the most comprehensive data source on Canada’s public venture capital markets.

Mr. Kaiser has a bulletproof reputation and is a sought after guest on business television and at conferences.

In his presentation to the AME, BC’s mining lobby group, Kaiser begins by reviewing the junior resource markets from 1978 until today. In that time span, Canadian venture capital stock exchanges provided the early stage capital for countless wealth creating mineral discoveries, but has undergone a number of structural changes aimed at preventing frauds. In hindsight, Kaiser says these regulations are now overkill.

Kaiser believes there are four key narratives that drive investment in early stage mining equities, and notes that none of them appear to apply today. These Key Narratives are:

  • Commodity Cycle
  • Security of Supply
  • Gold/Silver Bug
  • Exploration/Discovery

Brokerage firms, which used to be the lifeblood of the business, are now making it difficult for their Investment Advisers to put their clients in the sector.

These Canadian financial institutions used to serve as “Network Hubs” for knowledge transfer and rumour mongering, but that’s gone now, according to Kaiser. Big banks have consolidated the brokerage industry in Canada and the business model has evolved away from transactional business. This has killed the after-market for high risk stocks.

Another issue with Canada’s venture capital model, according to Kaiser, is that only Accreddited Investors (loosely: individuals earning over $200k a year for two years in a row or with more than $1 million liquid assets) can invest money directly into early stage companies, while regular investors are restricted from doing so, yet can buy all the stock they want in the open market.

This is “illogical” according to Kaiser and preventing cash from reaching companies. “Wealth and income do not imply sophistication,” he said.

Kaiser made a number of suggestions for how Canada can continue to be a world leader in financing mineral discoveries, which you can read in the presentation.

“Do not make the mistake of thinking that the world will suffer a future metals deficit if the Canadian public resource junior institution is allowed to die,” Kaiser warns.

Posted by: Tommy Humphreys

Read the entire presentation here. It’s very good.