However one feels about the debate, all would agree that Mr. Bass’s research paints a frightening portrait of Canada’s junior exploration sector. It raises questions about how hundreds of tiny resource companies can continue to exist. Sources said that auditors are offering these companies cut-rate fees to maintain their viability.
The big numbers are grim: by Mr. Bass’s calculation, these “zombies” have combined negative working capital of greater than $2 billion. Raising money has become impossible for many of these junior firms as market conditions have deteriorated over the past few years. Now they are just “walking dead” companies with no serious prospects that pose a threat to investors looking at the sector- but an opportunity for his clients to gain a listing for about $500,000 Canadian cash investment and annual listing and audut fees of $35,000.
So why are they still around? Mr. Bass noted that TMX Group Inc. is a profitable corporation that relies on listing fees for revenue. He believes the exchange is failing to enforce its own rules, and also blames auditors and securities regulators for not doing enough to crack down on these companies and protect investors.
In some cases, the accounts payable in these tiny companies are owed largely to insiders, which shows they are putting their own money in to keep the firms going.
There is a legitimate debate to be had on whether it is in the interests of investors to have companies such as these on the public markets.
More Application Not More Analysis Is Needed
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