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Capital Markets Raising Finance in Toronto & London (AIM)

IFLR China-Africa Investment Forum (Beijing)

Charles Bond & Nurhan Aycan

5 June 2013

Africa: on the rise

“Africa’s economy has outperformed most global regions over

the past decade, raising the prospects and attractiveness of the

once ‘lost continent’”.

- Claude Baissac, Eunomix

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London: Africa

• London markets understand

Africa

• Investors have a long standing

tradition of investing in Africa

• London is open for business

• Trinity Exploration & Production plc

– AIM admission & £57M placing

• Falcon Oil & Gas Ltd – AIM

admission & £17M placing

• LSE:TMX – complementary

markets

• Retail and institutional investors

both required

Equity capital markets

Regulated markets (UK Listing

Authority)

• LSE Main Market

• Premium, standard and high

growth segment

• Admission to listing (listing rules)

and trading

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Equity capital markets (cont’d)

Exchange regulated markets

• LSE AIM Market

• Admission to trading (AIM rules)

• Fast track for designated markets

(includes TSX)

• Listed for 18 months

• Announcement rather than

admission document

• Incorporation by reference to

accounts

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African companies on AIM

• More than 60 African companies are listed on AIM

• Vast majority are related to the mining industry, including general mining

(18), diamonds & gemstones (7), gold mining (5), nonferrous metals (3),

coal (3), and platinum & precious metals (2)

• Also companies involved in exploration & production, steel, specialty

finance, integrated oil & gas, water, food products, farming & fishing,

water, computer services, and real estate holding & development

• These AIM-listed companies operate throughout Africa

• Majority operate in South Africa (19), Tanzania (6), Sierra Leone (5),

Mozambique (4), Zimbabwe (4), Zambia (3) and Namibia (3),

• Also companies operating in Morocco, Nigeria, Mauritius, Madagascar,

Somalia, Botswana, Guinea, Liberia, Cameroon, Niger, Kenya, Mali,

Republic of Congo

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Regulatory environment

• European Union directives

• Financial Services and

Markets Act 2000

• Prospectus rules

• Regulated markets

• Offers to the public

• Listing rules

• Disclosure and transparency

rules

• AIM rules

• Companies Act 2006

Eligibility

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Continuing obligations

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Offer structures

• IPOs

• Offer for subscription

• Placing of new/existing shares

• Introduction

• Secondary offers

• Rights Issues (but prospectus

problems)

• Open offer

• Placing

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Offering into the UK

• Prospectus rules

• Offer to the public?

• >€ 5m and >150 retail investors

in any one EEA state

• Financial promotion

• Wide variety of exemptions

• Investment professionals/

sophisticated investors

• Existing shareholders

• Required or permitted

promotions

• Securities already admitted

• Sale of a body corporate

AIM quotation

• Timing (minimum 3 months)

• Straight float or reverse into

cash shell

• Delegated authority to

nominated adviser

• Due diligence, admission

document

• Lock-ins (independent and

revenue earning for 2 years)

• Continuing obligations

• Panel protection?

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Co-listings

• Considerations

• Profile

• Eligibility

• Level of regulation

• Accounting requirements

• Investor base

• Official List

• Premium main market

(super-equivalent, shares only)

• Standard main market

(EU minimum, other securities)

• Global Depositary Receipt

(GDRs) on main market

(emerging markets)

• GDRs on the Professional

Securities Market

• AIM

• Fast track for designated

markets

• Includes Canada’s TSX and

TSXV

• Listed for 18 months

• Announcement rather than

admission document

• Incorporation by reference to

accounts

Group structure: key issues

• Predominantly tax driven

• Expropriation and resource

nationalism

• ‘Any measures regulatory or

contractual, taken by a State to

enhance its control over a nation’s

natural resources’.

• Bilateral investment treaties

• ‘A treaty arrangement to provide

foreign investors with a level playing

field and access to an international

arbitral tribunal in the event that the

Host State uses its sovereign power

with detrimental effect to the foreign

investor’.

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Transaction structure considerations

• NOTE: The following IPO structuring considerations are

provided to [Issuer] as an indication of the analyses that will be

performed by Underwriter following:

• Completion of due diligence

• Valuation of [Issuer] – mutually agreed upon by Underwriter and [Issuer]

• Engagement of Underwriter by [Issuer]

• Typically [Issuer] would maximize its valuation and pricing

through an IPO entry into the public markets…

• …however, multiple factors need to be assessed as the story is

crafted prior to marketing and execution

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Going public considerations

• The following is a macro overview of the positioning of a

company with the following data points:

• $175mm - $200mm pre-money valuation

• $25mm anticipated raise

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Marketing Plan Overview

Estimated Offering Costs Other Considerations

Proposed Deal Structure

Summary Timetable

IPO

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Key decisions

• Consider the appropriate

transaction size and terms

• Determine the type of offering

• Treasury offering vs. secondary

offering (existing shareholders

exiting)

• A secondary offering needs to be

well positioned to the market so it

does not detract from the

underlying story

• Choose the right underwriting

syndicate

• Decide on the escrow and

lock-up provisions

Consider the investors

• Attract the right investors

• Institutional and retail investors

each fulfill distinct roles in a

successful equity offering

• Retail investors do not price

equity transactions, but they do

provide important follow-on

liquidity to the offering

• Ensure the marketing process

is targeted and thorough to

maximize investor demand

• Achieve the appropriate

pricing/demand tension

• Must be attractive to existing

shareholders

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Offering size

• Determining the offering size is about finding the right

balance between:

• Meaningful offering size: Large enough to attract institutional

investors

• Meaningful float: Target 20% - 40% of shares post offering

to create liquidity

• Justifiable use of proceeds: Further project development

• Treasury vs. secondary: IPO should be seen as an entry not an exit

• Control premium/discount: No shareholder should hold more than 2/3

of the company

Offering Size

Other offering related issues

• Employee option plan: An incentive plan for management and

key employees is important for retention

and focus but must be used properly and

not abused

• Executive compensation: Should be in-line with comparable public

company executives and industry norms

• Board compensation: $25,000 to $50,000 per year is the norm

for mid-cap companies

• Outside directors: IPOCo need independent outside directors,

lawyers, accountants (Gowlings can help

recruit appropriate people)

• Legal advisors: It is important to retain the right expertise

to save time and money in the long run

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Canadian stock exchanges

• Toronto Stock Exchange (TSX)

• Canada’s senior stock exchange

• More established issuers

• TSX Venture Exchange (TSXV)

• Canada’s junior stock exchange

• Provides companies at early

stages of growth the opportunity

to raise capital

• Graduation to TSX

Global exchange leader for new listings in 2012

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Source: TMX (Toronto Stock Exchange and TSX Venture Exchange (A Capital Opportunity: MINING)

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Review of the Legal “Business Case”

• Over 9,400 mining projects are held by

TSX and TSXV listed issuers (over 60% of

these projects located outside of Canada)

• Well-regulated, internationally friendly

market

• Regulatory regime is geared towards the

resource sector

• Ease of entry into the Canadian market

and appropriate, cost-effective, ongoing

compliance requirements

• Supports a vibrant and flourishing junior

and mid-tier mining sector in Canada

Components of becoming public

• Nature of the assets

• Is the company in the

exploration, development or

production stage?

• Is the company’s asset single

metal/mineral or multi-

metal/mineral deposits?

• What is the size (and potential

size) and location of the assets?

• Are there any identifiable barriers

or advantages to the location of

the assets for extraction,

transportation, milling, etc.

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Components of becoming public (cont.)

• Management/Governance

• Who will be the chief executive

officer and chief financial officer?

• Who can serve as independent,

knowledgeable directors

• Preferably with some experience

with public companies

• How will we prepare corporate

governance policies and charters

for the employees, directors and

officers to follow

• e.g. audit committee charter and

insider trading policies

Accessing Canadian capital markets

• Three primary methods of

listing in Canada:

• Initial Public Offering (IPO)

• Reverse takeover (RTO) or by

way of a “qualified transaction”

with a capital pool company

(CPC)

• Direct listing (inter-listing)

• This relates to international

companies already listed on

another senior stock exchange

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Canadian IPO process

• File a prospectus for review

by the securities commissions

• Prospectus includes full, true and

plain disclosure of all material

facts relating to the business and

affairs of the company and its

securities prepared to permit an

investor to make an informed

investment decision

• Audited financial statements for

preceding three years

• Technical report prepared by a

“qualified person” and in

compliance with the

requirements of National

Instrument 43-101

Canadian IPO process (cont.)

• Retain a Canadian investment

dealer as underwriter or agent

at the outset

• Apply for a listing with the

stock exchange

• Once prospectus is cleared by

securities commissions and

the stock exchange grants

conditional approval, close

the IPO and trading begins

• Shares of principals will be

escrowed post-closing

• Typical IPO can be completed

in 90–120 days

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Reverse takeovers

• Commonly used in Canada

• Business combination where

a business or property is sold

to a listed shell company in

exchange for a controlling

position in the listed shell

• Filings with and detailed

review by stock exchange

• Unlike IPOs

• No substantive review by securities

commissions

• More flexibility to arrange a

financing quickly at any point of

time (no pre-marketing concerns)

Reverse takeover process

• Sponsoring investment dealer

must be retained to review

transaction unless issuer is

conducting a concurrent

brokered financing

• Requires shareholder

approval and prospectus level

disclosure in management

information circular

• Shares of management and

key principals may be

escrowed

• Total time required: 3-5

months

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Capital pool company (only on TSXV)

• Very similar to RTO process

• A capital pool company (CPC)

is a shell company that has

become listed on the TSXV

• No assets other than cash (up to

a maximum of $5.0 million)

• No commercial operations

• used to acquire an operating

company or assets to obtain a

full listing on the TSXV (a

“Qualifying Transaction”)

• Must complete a Qualifying

Transaction within 24 months

Key advantages of a capital pool company

• Shareholder approval not

required – arm’s length

• “Clean” shell – no prior

operations

• Experienced board and

management

• Cash

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National Instrument 43-101

National Instrument 43-101: Standards of Disclosure for Mineral Projects

• Governs disclosure of a public company in Canada (written,

oral, websites, etc.) with respect to scientific and technical

information about mineral projects material to the company

• Qualified person (professional engineer or geologist with

recognized credentials) must prepare or supervise

preparation of an issuer’s scientific or technical disclosure

and/or feasibility studies

• Standard terminology and definitions to be used

• Prevents misleading disclosure and promotes disclosure with

context and caution

• Technical report obligations and prescribed form (43-101F1)

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Canadian securities regulators

• Provincial securities commissions

by virtue of being a “reporting

issuer”

• Securities Acts in each province

and territory

• Key legislation is mostly

standardized across Canada

• TSX / TSXV

• Contractual arrangement by way

of a listing agreement

• TSX will not apply some of its

standards to issuers listed on

another senior exchange where

trading value and volume on the

TSX is <25% of total trading value

and volume over past 6 months

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Ongoing compliance requirements

• News releases and material

change reports

• Management information

circulars

• Annual and quarterly financial

statements and

management’s discussion and

analysis (MD&A)

• Note: International Financial

Reporting Standards (IFRS) is

now the standard in Canada

• Annual information forms (not

required for TSXV issuers)

Success factors

• Discuss listings plan in advance

with TSX/TSXV, legal counsel,

investment bankers and auditors

• Schedule an advisory meeting with

TSX/TSXV staff to review listing

suitability, sponsorship

requirement and guidance on

timing and other matters

• Need float of shareholders in

Canada to provide secondary

trading on TSX/TSXV

• Obtain analyst coverage to

increase likelihood of higher

valuations

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One last tip

• A Chinese company should

put in place an investor

relations contact in Canada

and send executives regularly

to North America to conduct

road show meetings

Thank You

montréal ottawa toronto hamilton waterloo region calgary vancouver beijing moscow london

Nurhan Aycan

Tel: +1 416-814-5691

nurhan.aycan@gowlings.com

Charles Bond

Tel: 020 7448 3780

charles.bond@gowlings.com