Mining Companies’ Ads Violate Law, Canadian Regulators Say

Some Canadian natural-resource companies’ advertisements may be illegal because they promote their stocks rather than products or services, six of Canada’s provincial and territorial securities administrators said today.

Regulators “will take appropriate regulatory action” if companies continue to air such television commercials, according to a joint notice from agencies from Alberta, Ontario, Quebec, Nova Scotia, New Brunswick and the Northwest Territories.

“To give an appropriate picture of the investment, we don’t think it’s done justice by these 15- or 30-second clips, which have a few pieces of positive information and then often go right to the company’s stock ticker,” Tom Graham, director of corporate finance at the Alberta Securities Commission, said in a telephone interview. “There’s not much you can take out of that other than the purpose of promotion.”

Exploration businesses regularly advertise on Canadian television, often on BCE Inc.’s Business News Network or CBC News Network, part of publicly subsidized CBC/Radio-Canada. The ads often promote the companies’ businesses or prospects. Energy and materials companies make up 49 percent of Canadian stocks by market value, according to Bloomberg data.

Some of the commercials may not comply with laws restricting advertising during prospectus distributions or requiring that mining disclosures be approved by an engineer, the notice says.

Incomplete Picture

When issuers promote their shares to investors, they are supposed to give a complete picture of the company, including its risks, Graham said from Calgary. That can’t be done in a television ad, he said.

“Sending a balanced message in that time, I’m a bit skeptical,” he said.

Largo Resources Ltd., a metals explorer that advertises on BNN, has seen the notice and is confident its commercials are legal, Darcie Ladd, its director of business development, said in a telephone interview from Vancouver.

“Our compliance department is aware, and they always review all of our materials prior to us submitting them, so we’re not really concerned,” she said.

The notice also applies to other forms of advertising and to companies in other industries.

Regulators could order companies to stop advertisements that violate securities laws, Graham said. He declined to say whether issuers could face fines as well.

The Alberta Securities Commission has already convinced some issuers to withdraw their advertising in the last couple of months through informal communication, Graham said. He said he did not know how many companies the commission contacted.

CBC is still evaluating the notice, Jeff Keay, a spokesman for the organization, said by e-mail. Jacqueline Michelis, a spokeswoman at BCE, said by e-mail that the company will respond later. Greg McDonald, a spokesman for the Prospectors & Developers Association of Canada, said his organization declined to comment on the notice.

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