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Tax Benefits of Flow-through Shares in Mining and Exploration
Mining companies and investors alike can benefit financially from flow-through and super flow-through shares — but to understand why, one must first understand what these tax measures are.
Flow-through and super flow-through shares have been gaining popularity in Canada's mining sector, and for good reason.
There's much to be gained by taking advantage of the tax incentives provided by these share models, particularly in mining-friendly jurisdictions like Quebec. ASX-listed companies with projects in Canada have found these tax measures especially beneficial.
The bottom line is that mining companies and investors alike can benefit financially from flow-through and super flow-through shares — but to understand why, one must first understand what these tax measures are.
What is a flow-through share?
Flow-through shares are a type of common stock unique to Canada and typically associated with the Canadian resource sector. When a company issues a flow-through share, the tax credits it receives for expending capital on qualifying exploration and development projects will "flow through" to investors. Any funds spent investing in flow-through shares are treated as a tax deduction against the investor's income — in exchange, these shares are issued at a premium.
Any money investors make on selling their flow-through shares is considered a capital gain and taxed accordingly. For tax purposes, flow-through shares are treated as having a base cost of zero. Shares must also be held for a certain amount of time before they can be sold.
For mining companies, flow-through shares offer a compelling additional source of funding for exploration and development. At the same time, they also reduce a company's overall financing cost, enhancing viability. Moreover, because these shares are generally earmarked for a specific purpose, their sale does not dilute the ownership stake of a company's existing shareholders.
These factors together make flow-through shares particularly attractive for Australian critical minerals companies seeking to either gain a foothold in the Canadian market or mitigate the costs of a high-capital Canadian project, as they do not have access to any equivalent domestic fundraising methods.
How flow-through shares work
To issue a flow-through share, a company must be a corporation whose core business involves mining and exploration, processing, mineral recovery or metal fabrication. The project for which the shares are issued must be a mineral resource property, and it must be located in Canada. Beyond these requirements, the issuance process for flow-through shares is much the same as that for any common stock, with a few caveats.
First, the issuing company must work with a Canadian flow-through share dealer, entering into a subscription and renunciation agreement. In the case of Australian companies, additional provincial and/or federal forms are also required to renounce expenses. Canadian resident investors also do not hold the flow-through shares they purchase when it comes to ASX companies, though they are still able to benefit from the tax deduction.
Finally, flow-through shares are associated with two types of tax credits depending on the activity for which they are earmarked.
The Canadian Exploration Credit (CEE) provides an investor with a 100 percent deduction in the year of purchase. The Canadian Development Credit (CDE), meanwhile, allows the investor to write off their deduction over a period of three years. The premium for shares issued through the CEE typically ranges from 20 to 30 percent, while the premium for shares issued through the CDE is usually between 8 and 15 percent.
Flow-through shares vs. super flow-through shares
Super flow-through shares provide a provincial tax credit on top of the deduction offered by flow-through shares, typically 15 percent of certain "qualifying expenditures." For critical minerals, the value of this credit doubles to 30 percent. Depending on where the share was issued, this credit may either be deducted from an investor's taxes owed or applied to their income.
This tax credit is only available in certain provinces — specifically British Columbia, Saskatchewan, Manitoba and Ontario. Quebec also offers its own type of super flow-through share which deducts from income rather than taxes owing. In Quebec's case, an investor is able to deduct 10 percent of the expenditures associated with the CEE and an additional 10 percent if the company is engaged in aboveground exploration.
Additionally, the Canadian federal government recently announced the Mineral Exploration Tax Credit, providing an additional 15 to 30 percent federal tax credit for grassroots exploration.
As a Tier 1 mining jurisdiction with rich mineral reserves and extensive, well-maintained infrastructure, Quebec was ranked as the eighth most attractive mining jurisdiction in the world by the Fraser Institute's 2022 Annual Survey of Mining Companies. The province has long been known for its mining-friendly policies and the ease with which one may obtain mining permits. Moreover, Quebec's hydroelectric infrastructure provides abundant access to low-cost, sustainable energy.
With all this in mind, it's hardly surprising that many Australian companies have seized the opportunity to establish operations in the province. Pivotal Metals (ASX:PVT) is one such organisation.
Helmed by an experienced board and management team, the company maintains several battery metals projects. The first, Horden Lake, consists of an advanced copper, nickel and platinum-group metals deposit currently in late-stage development. It also holds multiple high-potential early stage exploration projects in the Belleterre-Angliers greenstone belt.
Winsome Resources (ASX:WR1,OTCQB:WRSLF), which is currently developing four fully owned hard rock lithium deposits in Northern Quebec, is another Australian company with a presence in the Canadian province. In February 2023, it announced its intent to raise up to AU$60 million through a combination of flow-through shares, institutional placement and a share purchase plan for its existing shareholders.
Burley Minerals (ASX:BUR) is another Australian player in Quebec's mining and exploration sector, having recently acquired the necessary permits to commence pad clearing and drilling at its Chubb Lithium project. Strategically located near several existing projects, Chubb Lithium also exists in close proximity to the North American Lithium operation and its recently recommissioned hard rock spodumene concentrator plant.
Flow-through shares and super flow-through shares are incredibly beneficial not just from a tax and investment perspective, but also from an exploration and development perspective. Australian mining companies have a great deal to gain from establishing projects in regions with tax-friendly policies, such as Quebec, as does anyone who chooses to invest in those projects.
This INNSpired article is sponsored by Pivotal Metals (ASX:PVT). This INNSpired article provides information which was sourced by the Investing News Network (INN) and approved by Pivotal Metalsin order to help investors learn more about the company. Pivotal Metalsis a client of INN. The company’s campaign fees pay for INN to create and update this INNSpired article.
This INNSpired article was written according to INN editorial standards to educate investors.
INN does not provide investment advice and the information on this profile should not be considered a recommendation to buy or sell any security. INN does not endorse or recommend the business, products, services or securities of any company profiled.
The information contained here is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities. Readers should conduct their own research for all information publicly available concerning the company. Prior to making any investment decision, it is recommended that readers consult directly with Pivotal Metalsand seek advice from a qualified investment advisor.
Investing in metals for a sustainable energy transition.
Countries across the globe are setting energy transition goals to meet emissions targets, leading to increasing global competition for critical minerals. Canada and the US have developed their own clean energy strategies, yet both countries are also heavily reliant on imports. A common denominator among the critical mineral strategies is the need to develop domestic supply chains. A domestic supply chain would create sustained growth for the energy transition, but getting there will require significant government investment. All of these factors add up to a steadily growing global demand for minerals and fierce competition to win the attention of mining companies necessary to build out the domestic supply chain.Pivotal Metals (ASX:PVT) is a global developer and explorer of world-class mineral deposits critical to an ever-increasing, technology-driven world economy. With copper and nickel assets in Canada, Pivotal Metals is committed to developing its projects in a manner that is environmentally and socially responsible.
Pivotal Metals’ exploration assets in Canada target the North American critical metals supply chain. The Horden Lake copper-nickel-PGM development project in Quebec, Canada, is the company’s most recent acquisition. With a JORC mineral resource estimate of 27.8 million tons (Mt) at 1.49 percent copper equivalent (CuEq) containing 414 kilotons (kt) of contained CuEq, Horden Lake is considered a “transformative acquisition” for Pivotal Metals. The project will be developed as a carbon-neutral operation connected to La Grange hydropower.
The company’s Quebec Belleterre-Anglier exploration project has known high-grade nickel-copper-PGE deposits at Midrim, Lorraine and Alotta. The project allows the company to build out a North American supply chain for the clean energy transition in a tier 1 mining jurisdiction that has committed $3.8 billion to advance its critical metals industry. PGMs in particular are gaining attention as a critical mineral required in the development of green hydrogen.
An experienced management team and board of directors lead the company. Steven Turner, managing director, brings 25 years of experience in the resource sector. Eddy Canova, executive operations, Canada, is a professional senior geologist with extensive experience of advancing exploration projects both in Quebec and internationally. The company’s board of directors also brings diverse experience to guide the company toward its ambitions.
- Pivotal Metals is an exploration and development mining company with assets in Canada, enabling it to become a significant contributor to domestic supply chains of critical minerals.
- The company’s Horden Lake copper-nickel-PGM project in Quebec has a JORC mineral resource estimate of 27.8 million tons (Mt) at 1.49 percent copper equivalent (CuEq) containing 414 kt of contained CuEq.
- The Belleterre-Anglier Project, also in Quebec, is an early-stage exploration asset with known high-grade nickel-copper-PGE deposits.
- Pivotal Metals is led by an experienced management team and board of directors that create confidence in its ability to reach its goals.
- Pivotal Metals recently raised AU$4 million through a flow-through share structure to advance its Quebec projects.
Horden Lake Copper-Nickel-PGM
Pivotal Metals acquired the Horden Lake polymetallic deposit in northwestern Quebec from Gestion Ora-Mirage Ltée in September 2022. Horden Lake is an advanced project
located approximately 140 kilometers north of the mining town of Matagami, and 300 kilometers north of the company’s wholly owned Belleterre-Angliers Copper-Nickel-PGM project, also in Quebec. The company has said that the project will be developed as a carbon-neutral operation, with its connection to the La Grange hydroelectric power complex.
- JORC Mineral Resource Estimate: 27.8 Mt at 1.49 percent CuEq containing 414 kt of contained CuEq
- Potential for Fast-tracking: Significant body of historical technical study work and more than 50,000 meters of drilling database makes for a huge potential to accelerate the project to pre-feasibility study
- Stable Infrastructure: Close to existing mines, transportation links and large hydropower facilities
- By-product Potential: Intercepts showed good grades of gold and cobalt, as well as silver and PGMs.
Pivotal Metals raised AU$4 million to advance its Quebec battery metals projects, Horden Lake and Belleterre-Angliers Greenstone Belt (BAGB). The capital raise will be used for a drill program at the flagship Horden Lake copper-nickel-PGM project, for which all necessary drilling permits have been received. An extensive metallurgical test program has been planned for Horden Lake, while additional exploration work at BAGB is also scheduled to progress this high-grade nickel-copper-PGM exploration project.
Belleterre-Anglier Exploration Project
Pivotal Metals strengthened its PGM-nickel-copper sulphide portfolio in Canada by acquiring the Alotta and Lorraine PGM-nickel-copper projects from Chase Mining Corporation. The acquisition, which combined with the Midrim and Laforce claims, now comprises the Belleterre-Anglier PGM-nickel-copper exploration project.
The Alotta and Lorraine tenement packages are adjacent to the Midrim and Laforce PGM-nickel-copper projects consolidating 157.4 square kilometers of the eastern portion of the Belleterre-Angliers Greenstone Belt located in the Abitibi-Pontiac Greenstone. The company now has a total of 137 new and reclassified targets identified across the combined exploration package, 20 of which were identified as ‘priority 1’ for further investigation.
- Previous open-pit mining at Lorraine during the 1960s produced recovered grades of 0.38 percent nickel, 0.90 percent copper, 0.62 g/t gold
- Drill results at Alotta are comparable to the historic high-grade polymetallic intersections at Pivotal Metals’ existing Midrim project, located just 1.5 kilometers NE of Alotta.
- Completed assays at Midrim and LaForce serve as proof of concept that the geological formations contain significant deposits. Testing has revealed 5 percent nickel in 10 percent sulfide at the Midrim nickel tenor and 10 percent sulfide at the Laforce nickel tenor
Simon Gray - Non-executive Chairman
Simon Gray was previously a director on the boards of Morgans Financial Limited and before that Shaw and Partners Limited, each being among the largest investment and wealth management firms in Australia. Prior to this, he was at various times Shaw’s deputy CEO and general counsel. Gray has a strong background in law and financial markets, having obtained a Bachelor of Laws, a Master of Law in Corporate and Commercial Law, and as a graduate of the Australian Institute of Company Directors.
Ivan Fairhall - Chief Executive Officer and Managing Director
Ivan Fairhall is a chartered engineer and mine finance professional with nearly 20 years of mining industry experience. He was most recently the CEO of TSX-listed Mawson Gold, prior to which he spent seven years as a senior investment manager with the UK private equity group Greenstone Resources, where he successfully identified, acquired and managed investments in development stage companies through to standalone production. Through his career, Fairhall has obtained an extensive technical grounding in various design, construction and commissioning roles, including considerable experience managing pre-development studies across the commodity and geographic spectrum.
Steven Turner - Non-executive Director
Steven Turner brings over 25 years of experience in the resource sector, having held senior roles in both industry and investment banking. During his career, Turner has been based in London, Aberdeen, Singapore, Brisbane and Madrid. Turner has raised significant capital for the development of resource projects, including equity, public bonds and project finance. Most recently he was head of business development at a private mining group, having been instrumental in the successful growth of the company from a junior to mid-tier Australian base metal operator. Turner holds Australian, Canadian and UK citizenship and is a fellow of The Chartered Accountants of England and Wales and a member of the Australian Institute of Company Directors.
Dr. Robert Wrixon - Non-executive Director
Dr. Robert Wrixon is currently a director of the mining venture capital group Starboard Global Limited and has 20 years of experience in corporate strategy, commodities marketing, mining M&A and mineral exploration management. He has previously run two listed junior resources companies in Australia, and prior to that spent five years in corporate strategy for Xstrata plc based in Sydney and London. Wrixon is an Irish national and holds a Ph.D. in mineral engineering from the University of California, Berkeley. Wrixon is not considered to be an independent director.
Daniel Rose- Non-executive Director
Daniel has extensive experience in the investment banking industry, commodity financing, origination and trading. He most recently served as CEO and director of VTB Capital Hong Kong (VTBC), overseeing an SFC-regulated investment banking platform focused on natural resources activities across global markets, structured and corporate finance, M&A and asset management. Rose has spent 18 years in the commodity markets working for Societe Generale (prior to VTBC) in Sydney, London, Hong Kong and Singapore. Rose holds a Bachelor of Law (Hons) and Bachelor of Commerce degrees from Bond University.
Eddy Canova – Executive Operations, Canada
Eddy Canova is a professional senior geologist (OGQ (403)-PGeo) with extensive experience of advancing exploration projects both in Quebec and internationally. Canova has successfully advanced exploration projects from inception to mine development, managed mining operations, and has followed through various study stages: preliminary economic evaluation, pre-feasibility, feasibility and environmental impact studies.
Amanda Wilton-Heald - Company Secretary
Amanda is a chartered accountant with over 20 years of accounting, auditing (of both listed and non-listed companies) and company secretarial experience within Australia and the UK. Amanda has been involved in the listing of junior explorer companies on the ASX and has experience in corporate advisory and company secretarial services.