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This month will mark the introduction of a new capital raising option primarily aimed at small cap issuers. National Instrument 45-106 of the Canadian Securities Administrators (Prospectus Exemptions) is being amended to allow issuers listed on a Canadian Stock Exchange for at least 12 months to offer freely tradeable shares to the public without a prospectus.
Two unique features of LIFE that could be a significant boost to capital raising for smaller Canadian issuers in the mineral industry are that:
- Subscribers are not required to be accredited investors; and
- There is no resale restriction on the securities being offered.
Hopefully, the easier access to a broader group of investors provided by LIFE will create better access to capital without the same discount applied to restricted securities.
A short form disclosure document (a Listed Issuer Financing Document) is required to be filed and made available on the issuer’s website. However, unlike a prospectus, it is not subject to prior review by the securities regulators so an offering can commence just a few days after this document is prepared. However, an issuer and its directors and officers can be held responsible for a misrepresentation in the Listed Issuer Financing Document since it is deemed to be a “core document” within the meaning of the secondary market liability provisions of Canadian securities legislation.
The exemption limits the amount raised by an issuer in a 12-month period to the greater of:
- $5 million; and
- 10% of the market value of the issuer’s listed shares at the time of the announcement of the proposed offering to a maximum of $10 million.
This maximum size of the offering can be further reduced based on a 50% dilution limit. The base number of shares for determining the dilution limit is the number of equity securities outstanding 12 months before the proposed offering, and unit offerings are counted on a diluted basis.
Capital raising is particularly challenging for junior exploration companies in the current market environment. Hopefully, the same easier access to a broader group of investors provided by LIFE will create better access to capital without the same discount applied to restricted securities.