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Initial Public Offering (IPO) vs. Reverse Takeover by Way of CPC (RTO)

John Gravelle, Partner PricewaterhouseCoopers LLP Toronto, Canada

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Initial Public Offering vs. Reverse TakeoverIPO Steps: Initial shareholders transfer all shares of Colombian mining company to a new Canadian company for shares. New Canadian company lists on the TSX and issues shares to new shareholders.

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Structure Post-IPO

Original Shareholders

New Shareholders

Canadian Company (TSX)

Colombian Mining Company

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Initial Public Offering vs. Reverse TakeoverRTO Steps: Existing Canadian TSX company makes a bid to acquire Colombian mining company for shares. Original shareholders transfer shares of Colombian mining company for shares of TSX company. The TSX company may do a capital raise at the same time.

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Structure Post-RTOOriginal Colombian Company Shareholders

Original TSX Company Shareholders

New Shareholders

Canadian Company (TSX)

Colombian Mining Company

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Initial Public Offering vs. Reverse TakeoverBenefits / Costs of RTO: Benefits RTO corporation may have some cash Can access capital faster - Filing document with TSX is more comprehensive for an IPO - TSX or TSXV must review; the review may be less contentious for an RTO since the company already exists and has a filing history

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Initial Public Offering vs. Reverse TakeoverBenefits / Costs of RTO: Costs TSX company may have hidden liabilities - Use CPC - RTO corporations shareholders will require a share in the new company - CPCs tend to have some cash - CPCs are established for this purpose and will bargain hard - Pricing to CPC shareholders

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Initial Public Offering vs. Reverse TakeoverShareholder Meetings: For an RTO, a shareholder meeting of the public company is required to approve the deal, etc. For an IPO, the shareholder meeting is simpler since the company that requires shareholder approval is private

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Initial Public Offering vs. Reverse TakeoverAuditor Issues: IPOs require a comfort letter from the companys auditors Comfort letter is not required for reverse takeover RTO involves two audit firms (and an additional law firm)

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Initial Public Offering vs. Reverse TakeoverOther Issues: Change of control issues with mining permits/other contracts A share transfer is required - this could have tax consequences

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Merger of TSX / LSE

Earlier this month the TSX and LSE proposed to merge The merger would create the largest mining exchange Subject to government approval

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Merger of TSX / LSE

TSX companies that would otherwise obtain dual listing on LSE should benefit Decreased regulation Benefits to mining companies with higher market capitalization Will mining companies with