What is a Zombie?
A TSXV- or TSX-listed company that has negative working capital [current liabilities exceed current assets]. Our current study is limited to mining and mineral exploration companies.
What are Continued Listing Requirements (CLR)?
If you go to the Corporate Policy Manual and look at Policy 2.5 there is a table that shows minimum working capital needed ($50,000 or 6 months of operations and G&A) and minimum mineral exploration activity required ($50k exploration in the latest year and $100k in the last two years).
What is supposed to happen if a company fails to meet CLR?
If it meets all but one requirement, the exchange is supposed to issue a notice giving it six months to repair the deficiency or it will be transferred to NEX or delisted.
If it is deficient in two or more requirements, notice is reduced to 90 days.
The requirements and remedies seem clear. Why put out a Zombie List?
When the exchange either doesn’t enforce its CLR rules or enforces them selectively, and when auditors fail to note that a company’s most material contract [the listing agreement] is at risk, investors who assume that a TSX or TSXV listing means the company is viable are basing their conclusions on incorrect facts.
How widespread is the problem?
Our latest stats for mineral exploration companies were assembled in December 2019. They show 398 TSXV Zombies with total negative working capital of over $1.7 billion. In addition, there are 47 TSX Zombies with total negative working capital of over $1.4 billion.
Add it up: 445 companies over $3.1 billion in the hole. And that’s not including CSE exploration listings with negative working capital. We’ll save those figures for another day.