The TSX Venture Exchange continued to attract investment dollars in 2007 with initial public offerings of common shares, flow-through shares, capital pool companies and even a real estate investment trust, according to Investment Executive’s annual survey of the IPO market.

The TSXV is still very much the incubator of Canadian capital market deals. In 2007, the junior market generated some 243 IPOs for a combined value of $552.8 million going to newly listed companies. Of those, 181 were smaller capital pool company offerings. CPCs accounted for 74.5% of the TSXV activity by number of issues, but $86.6 million or 16.6% of its total value.

The majority of IPOs on the TSXV in 2007 were in the mining sector, accounting for 57.4% of all IPOs and a combined value of $317.2 million. The oil and gas sector placed a distant second, representing four IPOs worth a combined $48.5 million.

Kevan Cowan, president and CEO of the TSXV in Calgary, is not surprised to see record growth in the mining sector; the venture exchange was, after all, started as Western resources-based exchange. Cowan does see room for diversified growth within the junior market, however, especially in the biotechnology sector, noting a 50% increase in financing over 2006.

The TSXV is beginning to diversify, he says, as companies and individuals realize the opportunities for ground-floor investing. “None of us ever dreamed we would see the level of trading we are seeing today,” says Cowan.

The number of companies that have graduated to the Toronto Stock Exchange from the TSXV bear witness to the opportunities the TSXV affords a junior company. In 2007, 46 companies made the transition to the TSX.

Equally attractive is the CPC program, which, according to Cowan, is attracting interest from foreign companies looking to avoid the hassle and cost of trading on the Nasdaq in the U.S. or the London Stock Exchange’s Alternative Investment Market.

The TSXV’s CPC program provides an alternative, two-step introduction to the capital markets. CPCs differ greatly from traditional IPOs in that they allow seasoned directors and officers to be listed on the TSXV with no assets other than cash and with no commercial operations. The CPC generates a pool of capital and uses these funds to seek out an investment opportunity in a growing business. Once the CPC has completed its “qualifying transaction” and acquired an operating company that meets exchange listing requirements, its shares continue trading as a regular listing. This program is becoming increasingly popular with junior companies looking to access capital but which are wary of the underwriting risk involved.

By number, new TSXV CPCs vastly outnumbered their traditional IPO counterparts: 181 to 62. Cowan suggests that there is perhaps too much focus on traditional IPOs in the Canadian marketplace, when it is clear that junior companies are opting to use the CPC program. In fact, in 2007, there was one less IPO offered compared with 2006, but there were 77 more CPCs listed on the TSXV in 2007 than in 2006, a 75% increase.

The big players in the IPO game in 2007 were Vancouver-based Canaccord Capital Inc. and Toronto-based Blackmont Capital Inc. , taking on the roles of lead underwriter in 59 and 31 IPOs, respectively. Although Canaccord and Blackmont do not publicly disclose their total revenue earned from commissions, IE estimates Canaccord took in about $6.3 million in commissions from IPOs in 2007, with an average agent fee of about 9%. Blackmont, on the other hand, raised about $3.4 million at an average commission rate of 9.5%.

Despite leading the pack in terms of volume of new issues, neither agent was involved in the largest new issues on the TSXV of 2007.

The largest IPO on the TSXV in the past year was B2Gord Corp. This Vancouver-based company raised $100 million, with a $6-million overallotment. The precious metals exploration company was formed in 2007 by the former management team of Bema Gold Corp.

That $100-million deal was one of a kind. The next-largest deal was Whitemud Resources Inc.’s $50-million IPO. This Calgary-based company is looking to become the leading manufacturer of metakaolin, an additive in concrete, in North America. Having secured leases for one of the largest known kaolin deposits in North America, Whitemud has begun construction of a metakaolin processing plant and plans to begin production in early 2008.

@page_break@As for other IPOs on the TSXV, there were 11 deals in the $10 million-$50 million range, accounting for 42.4% of total value. There were 60 IPOs in the $1 million-$10 million range that made up 27.7% of the value. And there were 171 IPOs of less than $1 million, making up 11.8% of the value.

Where the junior market is headed in 2008 is difficult to predict. It’s no secret that commodities have done well and CPCs continue to attract attention. Will more foreign companies opt to trade on the TSXV in order to avoid the headache of other markets? As Cowan puts it: “At this point, it’s anyone’s guess.” IE