Resource World Magazine

j u n e / j u l y 2 0 1 4 www.resourceworld.com 31 tal pinch. In fact, some are going out of business while others have been delaying further exploration activities until market sentiment shows some sustained renewal. The situation is so serious that Glenn Nolan, past president of PDAC, has said that access to capital is one of the biggest challenges facing the mining industry today, adding that the flow-through incen- tive is "vital to the exploration industry in Canada as it helps to keep jobs and investment in Canada, and ensures our competitive position globally." Fortunately, the picture isn't all dire. Even during the worst of the mining capi- tal crisis, there has been an open window of opportunity for mining exploration companies and investors to benefit from the flow-through regime: flow-through share donation financing. wHAT IS fLow-THrouGH SHArE donATIon fInAnCInG (fTSdf)? Flow-through share donation financing (FTSDF) is a tax shelter gifting arrangement that leverages flow-through investment tax benefits to enable individuals – typically major donors – wishing to give to charity to do so at a significantly reduced after-tax cost. The way it works is the investor first subscribes for flow-through shares (achieving one set of tax deductions), which are then immediately donated to charity (generating another tax deduc- tion), and the shares are immediately sold on behalf of the charity. One of the elegant realities of this arrangement is that all par- ties are at arm's length to one another. The charity simply issues a tax receipt equal to what it actually receives in cash on the closing of the transaction, representing the best indication of the fair market value of the involved shares. Pioneered in 2007 by Toronto- based PearTree Financial Services, the flow-through share donation program provides obvious cost benefits to the chari- table donors who subscribe to the service. However, because it essentially transforms standard flow-through share offerings (which by their very nature can only be accessed by individual Canadian inves- tors) into risk-mitigated financings that hold tantalizing appeal to institutional and offshore investors, Canadian mining explo- ration firms suddenly have access to new, large and motivated capital pools. Given that the total value of flow- through financings in Canada amounted to just over $400 million in 2013 – less than half the deal volume that would normally be expected in recent years – the fact that PearTree, alone, placed more than $100 million of capital into junior mining explo- ration firms across Canada, is testament to FTSDF's worth as an alternative capital source. "The ability to mine a new vein of capital via a flow-through donation financ- ing can be a critical lifeline, particularly when the markets are being so unforgiv- ing to juniors," said Norman Brownstein, President of PearTree Securities Inc., the PearTree subsidiary that handles securi- ties arrangements with the flow-through financings. "By their very nature, flow-through incentives are intended to be a finely tuned balance of one taxpayer's deductions being another's inclusion," Brownstein adds. "The share donation structure allows this principle to be taken a step further to spread the benefits to a wider seg- ment of the Canadian social and economic landscape." Accordingly, FTSD can have a direct positive impact accelerating and increas- ing donation funding for everything from universities to hospitals and other worthy charitable endeavours across Canada, while providing a much needed alternative source of capital for the junior resource sector – something worth considering. n

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