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Aug 2006 - AIM or the TSX

Is it better to list on AIM or the TSX ? (from an Australian company viewpoint)

Australian companies looking to raise finance, potential share price appreciation and international exposure are often faced with a choice between listing on AIM (the Alternate Investment Market of the London Stock Exchange) or the TSX (the Toronto Stock Exchange). This column has been based on our observations to date, since the early 1990’s.

Australian (and to some degree South African) gold companies for many years tried to acquire a North American share rating, because the North American shares typically trade at higher premiums than Australian golds. This premium was perceived to be largely due to a weight of funds argument, in which a number of North American funds could only hold gold shares that were listed on the North American stock exchanges (It was once stated that about 50% of North American resource funds could only invest in North American resource stocks). Other funds that relied on indices consequently exacerbated the weighting in favour of the North American stocks.

When combined with tax break schemes such as the Canadian flow-through shares scheme, and the physically greater size and number of offshore resource funds, the result has been a greater ability to raise money outside of Australia. The offshore funds also appear to have lower country risk levels than their Australian counterparts.

We have seen the emergence of AIM and the ready ability of Australian companies to list either on AIM or the TSX, with resulting varying impacts on the companies that have followed such routes.

For quite some time, companies that list on the TSX had to have at least one Canadian director, based in Canada. (This reputedly changed in January 2006, but we have been unable to convincingly verify it). In some cases (such as Redback) there appears to have been a gradual replacement of the senior Australian management / directors such that the company becomes Canadian and loses its Australian identity including in some cases its original Australian director that took that route.

Whereas on AIM no such requirement appears to be required, the existing directors appear to stay and continue to manage their company for many years afterwards, (e.g. Aquarius Platinum).

Regulatory controls appear to be significantly greater for companies listed on the TSX with releases having to meet 43-101 compliance (which was introduced after the Bre-X fiasco). This regulatory control appears to be becoming more restrictive. One Australian resource company that recently listed on the TSX commented to us that their announcements have to state “not for release in the US or North America (or words to that effect)” and at one conference they had to take back a handout that they had given to potential investors.

No such limitations appear to apply to companies that list on AIM.Independent research seems to encounter a major restriction for companies listed on the TSX in that it appears that it cannot be placed on the company’s website, and can only be accessed through a broker or trader. The normal route appears to be for research to be produced by North American brokers, and potential investors can ask that particular broker for a copy of the research. If the North American brokers don’t cover the stock, the Australian company could potentially face a dilemma.

No such restriction on independent research appears to apply to companies listed on AIM.

As for the share price effect, we have shown the impact on two recently listed shares in Figure 1, namely Leyshon Resources on AIM and Crescent Gold on the TSX. Both stocks have gold projects that are heading through feasibility studies and into production, Crescent’s being in Australia and Leyshon’s in China. Both companies have had significant share price spikes that coincide with well above average (>1million shares per day) trading in them.

In the example in Figure 1, Leyshon has appreciated more on AIM from its listing to its August 10 close. However, other stock comparisons could produce different conclusions, or applying similar periods in the charts can result in other conclusions.

Consequently, there may be little share price difference as to whether the Australian company lists on AIM or the TSX.

We would like to emphasise that this column has been based on observations to date and is subject to revision.

However, many Australian companies often ask us which one they should choose out of AIM or the TSX, and so far from an Australian company viewpoint, listing on AIM currently appears to be less restrictive than listing on the TSX.

Disclosure and Disclaimer : This article has been written by Keith Goode, the Managing Director of Eagle Research Advisory Pty Ltd, (ERA, an independent research company) who is an Authorised Representative with Taylor Collison Ltd, and with his associates, may hold interests in some of the stocks mentioned in this article. The opinions expressed in this article should not be taken as investment advice, but are based on observations by the author. The author does not warrant the accuracy or completeness of any information and is not liable for any loss or damage suffered through any reliance on its contents.

Figure 1. Leyshon Resources (GBp) and Crescent Gold (C$) since listing on AIM and the TSXGDNaug06

  • Written by: Keith Goode
  • Tuesday, 01 August 2006