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A Path Forward to Offering Freely Traded Securities by Mineral Exploration Companies and Other Small Canadian Listed Issuers

The Canadian Securities Administrators (CSA) have released a proposal for an alternative prospectus offering model intended to remove some of the barriers such as high underwriting and legal costs that inhibit smaller issuers from using prospectuses. This would be the only exemption from offering securities by way of a conventional prospectus offering that would allow companies to issue securities that would not be subject to a resale restriction. Small public mineral exploration companies would be one of the primary beneficiaries of this new model. It would allow issuers which have been reporting issuers for at least 12 months with securities listed on a Canadian stock exchange to raise $5 million or as much as $10M if they have a market capitalization of greater than $50 million.

The cost for small issuers to access the public markets would be reduced since the alternative form of prospectus is a simple, easy to complete short form offering document which the CSA does not expect to be longer than a few pages, and there would not be any review of the document prior to the issuer commencing to use it. Furthermore, there would be no requirement for an underwriter to be involved.

Investor protection concerns are addressed by making issuers subject to the same liability in the event of a misrepresentation in the offering document as is the case with continuous disclosure “core documents”. This approach seems to be aimed at limiting the liability of an underwriter if one is involved in the offering which in turn should decrease the underwriting costs of the issuer. In addition, investors would have a 180 day right of rescission in the event of a misrepresentation which is the same approach to liability in the event of a misrepresentation in an offering memorandum.  In addition, the funds raised under the Listed Issuer Financing Exemption would not be permitted to be used for a significant acquisition or restructuring transaction or for any other transaction that requires shareholder approval.

The CSA is seeking comments on its proposal until October 26, 2021. The Request for Comments includes a helpful summary chart of the conditions for the use of the alternate offering model as well as a list of specific questions on which input is being solicited. (https://www.bcsc.bc.ca/-/media/PWS/New-Resources/Securities-Law/Instruments-and-Policies/Policy-4/45106-CSA-Notice-and-Request-for-Comment–July-28-2021.pdf)

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