TSX Venture Options Exchange: How Would It Work? Better For Investors In Canada And Abroad?

Scott Hough

Previously, the Inquisitr reported on the “walking dead” companies of the TSX Venture Exchange, the offspring of a 1999-merger between the Vancouver Stock Exchange, dubbed “scam capital,” and the Alberta Stock Exchange, incubating grounds for Bre-X, possibly the most infamous stock fraud of all time, as reported by Canada.com, and the fact that renaming the market to an options exchange could be a solution for many of its numerous troubles as well as potentially saving lives.

Comparisons of out-of-the-money call options and many penny stocks listed on the TSX Venture Exchange share a remarkable similarity: a seeming affinity for losing the majority of their value, seemingly a majority of the time.

A stock sold to retail investors that has lost more than 90 percent of its value has potentially caused real financial hardship. By renaming the TSX Venture Exchange to an options exchange, the majority of small, susceptible retail investors would not have access to such instruments.

Is the TSX Venture Exchange more accurately, and fairly for small mom and pop investors, described as an options exchange, rather than a stock exchange?
The Toronto Stock Exchange in 1955. [Photo by Evans/Three Lions/Getty Images]

Further, buyers of options have an understanding that there is a high probability that their investment is going to zero. Forcing issuers and promoters of no-sales, no-earnings companies to issue options instead of penny stocks removes a very real motive from Canadian society to commit nefarious acts in order to conceal and deceive others of the true nature of an investment.

An example of unfortunate shares, issued by a company whose management, lamentably, did not have the option to issue options, are those issued by Orefinders Resources Inc. (TSXV: ORX), as previously reported by the Inquisitr. According to Yahoo Finance, Orefinders has no revenues, book value per share of $0.16, and earnings per share of $-0.01. When questioned, senior officers with the firm were unable to provide revenue or earnings guidance. Orefinders has no analyst coverage.

Orefinders has ownership of a stockpile of previously milled mine tailings containing an estimated 2,939 ounces of gold, equating to about CDN$4.7 million with current prices. Otherwise, Orefinders does not appear to have any firm future sources of revenue. Comparing the mineral exploration company’s market capitalization of $2.56 million to the roughly $4.7 million of gold they report they have in tailings makes a certain amount of sense. That Orefinders shares are down 91.5 percent since the earliest data available with Yahoo Finance in early 2013 indicates, that, at that point, Orefinders’ market capitalization greatly exceeded potential revenues from its stockpile.

Are shares, such as those offered by Orefinders Resources, more accurately described as options?
[Image via Venngage]

Despite this, Orefinders appears to be a real company. They appear to have plans to complete real work and convert assets to revenues. While the performance of Orefinders stock, down 90+ percent, would seem to indicate that they perhaps should not have been issuing shares, Orefinders would seem a prime candidate for issuing perpetual options on a newly designed TSX Venture options exchange.

Another company previously featured by the Inquisitr, Toronto Stock Exchange-listed Kerr Mines Inc. (TSE: KER), has also seen its shares perform almost as if they were out-of-the-money call options, losing more than 99 percent of their value since 2007. The TSX announced a de-listing review of the firm on March 9, as reported by PR Newswire.

While the shares of Kerr and Orefinders have both hurt investors to a similar extent, Kerr is noted for seeming disingenuous statements by former CEO Todd Morgan with regard to the company’s former Larder Lake property’s production capacity.

“The gold was always there. We all believed in it a long time ago.”

Would investors hurt by shares like those offered by Kerr Mines have been better served if the company had issued options instead?
[Image via Venngage]

Yahoo Finance reports that Kerr Mines has a book value of $-0.01 per share, no sales, and no earnings. It would seem that if the shares of Kerr Mines were to be continued to be traded anywhere, reclassified as options on a TSX Venture options exchange, safely out of reach of the average retail investor might seem a solid, sensible choice.

Park Lawn Corporation (TSXV: PLC) appears to be an example of a company with TSX Venture Exchange-listed shares, that, while not perfect, actually appear to trade like shares and not options. Yahoo Finance reports that Park Lawn, a funeral services company, reports EPS of $0.52 and revenues of $28.52 million. The firm carries cash of $257,700 and debt of $13.67 million with a debt to equity ratio of 57.91 percent. Park Lawn pays annual dividends of $0.46, currently yielding 3.66 percent and has a market capitalization of $72.24 million.

Since January 2011, shares of Park Lawn have returned 70.01 percent, compared with a gain of 52.27 percent for the Dow Jones Industrial Average (^DJI).

Should small, profitable companies like Park Lawn Corporation be listed on the senior Toronto Stock Exchange rather than being mixed in with option-like securities on the TSX Venture Exchange.
[Image via Venngage]

It would seem that both the performance of Park Lawn management as well as the performance of PLC shares in the open market would demonstrate that while small, investors with the funeral services company were much better served than investors in the shares of Kerr Mines, described above. Would Park Lawn and Canadian investors be better served if PLC shares traded on the Toronto Stock Exchange rather than mixed-in with stocks that trade, almost as if they are options?

The shares of a fourth TSE-listed company, Kirkland Lake Gold Inc. (TSE: KGI), seem to be a proper fit with their home in Toronto. KGI stock is flat over the past 10 years and up by 42.73 percent over the past 12 months. The Kirkland Lake gold mining company has revenues of $224.7 million, EPS of $0.24, a cash position of $83.39 million, and debt of $119.67 million. Kirkland Lake Gold reports a debt to equity ratio of 38.47 percent and a return on equity of 6.52 percent.

Mining companies like Kirkland Lake Gold that report both revenues and profits seem to be good candidates for continued listing on the Toronto Stock Exchange and do not trade in an option-like fashion.
[Image via Venngage]

In the future, with a proposed junior options exchange, if Kirkland Lake Gold’s revenue or profitability were to fall below a specific level, that would seem open for debate, its shares could be converted to perpetual options and traded on a TSX Venture options exchange. If the company was to regain its lost revenue generation capacity or profitability, they could be converted back to shares and listed on the TSE once again.

[Photo by Evans/Three Lions/Getty Images]