Vancouver? All that glitters is not gold but some really is!

A friend wrote to ask about Vancouver's reputation for stock scams. David Baines has been writing these stories in the local press for years. I started to write a short reply which just grew and then got revised and partially deleted and then rewritten. This essay is the result. 

Vancouver Mining Companies 

There are a number of historical reasons for these things to get hung on Vancouver's collective neck. The Colony of British Columbia (aka BC) was founded in the days of the 1858 BC gold rush. Both Vancouver and Seattle first prospered in the effort to supply the miners rushing to the 1898 Yukon gold strikes. Since it takes millions or billions to explore and develop a mine, it was only natural that the Vancouver stock market evolved into a world centre for small exploration companies. This is still true today. 

There are many small mining companies exploring and operating in places like Peru and New Guinea that are based and financed from Vancouver. As they get larger and more established many of these companies move to the Toronto exchange. There have been many head office moves, corporate sellouts and company mergers in the last few decades. Many more large mining companies are based in places like Toronto and London than in Vancouver. 

Forestry and fishing are also key BC resources in the local economy but have never required financing to the same extent. It is much easier to set up a shake mill or buy a local fishing boat than build an operating mine or smelter. Eventually in the nineties the Vancouver Stock Exchange closed down its trading floor, merged with the Alberta exchange and was swallowed up by the much larger Toronto Stock Exchange. Many of the smaller exploration companies still operate on the Toronto Venture Exchange subsidiary.

Vancouver Penny Stocks 

All those brokers and traders working in Vancouver weren't quite ready to leave the Vancouver beaches to live in Ontario mining towns. After the mining promoters got educated in pumping and dumping mining stocks it was just a short step to using the same skills on lottery ticket scams and Internet promotions. Some turned their skills to the promoting and plugging and dumping on every profitable scheme that came their way. Just as California invented Pets.com and Calgary invented Bre-X Mining, I am afraid that many traders in Vancouver have had a fun decade operating lottery scams and pumping penny stocks.
 Small neighbourhood stores here still feature the weekly Northern Miner right between the daily Racing Form and the Western Investor. 

The local population 

Vancouver is still close to the wilderness in many ways. One can walk across a bridge from the city centre and within a few hours find wild deer, coyotes, bears and some of the world's tallest trees. 

This is the Terminal City where adventurous misfits end up. It is a new place only founded in 1886. It is not so strange that the people who have drifted here from "back east" or across the Pacific are more likely to include more rogues and scammers than the crowd of clerks and farmers that remained at home.
The BC drug culture must be part of this story. For many reasons there has been a long local tradition of tolerance for human idiosyncrasies and foibles. When you scratch the surface veneer of many a local law firm, real estate agency or car dealership you are likely to find a lot of drug money sloshing around. What better way to launder some of that money but to put it to work on some sort of shady promotion? 

BC Politics and oversight 

British Columbia has had some colourful politics. While we have a strong tradition of unionism and socialism we also have a slightly stronger right-wing political tradition. The wacky Social Credit party ruled this place for more than thirty years o my life. The Bennetts and Vander Zalms rarely saw a big project or big business that they did not love and appreciate. If that meant skipping a few steps in the rules for financing or stock market oversight that was rarely a problem. 

In the Socred years both the powerful BC Forestry Minister and the Vancouver Police Chief were convicted of bribery. (The local double speak is interesting. The BC Social Credit movement was anything but socialist and the current BC Liberal government is far from liberal). Knowing something of provincial politics is important when looking at stock market oversight. 

In many ways the Canadian provinces have a much stronger role in regulating the economy than the American states or even European Common Market members do. The Canadian provinces retain full ownership and regulation power over all onshore mineral and forestry resources. While the federal government creates criminal law, the provinces regulate stock markets, enforce the criminal law and set civil law regulations. We have the absurd situation where a bank or insurance company that operates country-wide has to follow 13 sets of regulations. 

Gold among the dross 

Finally I wanted to point out that not everything that glitters is Fool's Gold. Occasionally the gleam leads to true wealth. Two of the world's biggest mining companies, GoldCorp and Teck Cominco, still have BC headquarters. Some of those pink sheet and OTC stock companies are legitimate and some of them will lead to wealthy investors. The old rules still apply. Diversify your investments and if something is too good to be true it probably ain't. 

While investigating this blog I came across a company named Klondike Gold. (I am certainly not recommending this stock and I have certainly not evaluated its financial prospects at this time. The company president used to work with my father decades ago).
 My heart did beat faster as I read the names in the story and interview. Any Canadian's heart should beat a little faster when he reads about the Eldorado stake, the Sullivan Mine and Hemlo Gold. My intellect knows my investments should all go into steady and boring things like big cap mutual funds but the romance of striking it rich in the next gold rush remains close to my western Canadian soul. I am still just a little beguiled at the prospect of the next big discovery.