Natural resource investors know Canada to host some of the most prospective gold, potash, uranium and iron ore projects in the world, but many may be missing out by not knowing about the Canadian government’s flow-through shares program.
Flow-through shares, created in 1972, allow mining, oil & gas and renewable energy companies on Canadian soil to transfer qualified exploration expenses to investors, ensuring themselves safer passage on the road to resource delineation and extraction. These include:
- Up to 100 per cent of Canadian exploration expenses.
- Up to 30 per cent of Canadian development expenses.
In exchange for accepting a higher share price to reflect the flow of these expenditures, investors can reduce their taxable income by the amount invested, on top of the 15 per cent Mineral Exploration Tax Credit and 30 per cent Critical Mineral Exploration Tax Credit, as well as incentives from certain provinces, including Ontario, British Columbia and Quebec, adding potentially significant leverage to an investment should a discovery lead to a resource or value-accretive asset sale.
Only accredited investors can buy flow-through shares from companies directly, though non-accredited investors can access them through limited partnerships where money is pooled and allocated into a portfolio of exploration opportunities. This broad net resulted in an average of over C$500 million in flow-through financing per year from 2014 to 2019, doubling to over C$1 billion per year since 2020, according to the Prospectors and Developers Association of Canada. Nearly 70 per cent of mining financing raised on Canadian stock exchanges originated through flow-through shares in 2023.
The importance of due diligence when investing in flow-through shares
Flow-through privileges place a premium on evaluating junior miners and allocating only into those best positioned for positive outcomes. This is why it’s essential for readers to perform thorough due diligence before investing, selecting for:
- Management with a proven track record of value creation exploring for its target commodities.
- Assets backed by prospective exploration results and a proven ability to raise funding, making tangible progress towards certified studies as to the value of mineral resources and reserves, including mineral resource estimates, preliminary economic assessments, pre-feasibility studies and feasibility studies.
- Commodity tailwinds that pave the way for operations paying off over the long-term, ensuring attractive prices upon reaching the production stage.
It’s only by controlling risk through the identification of fundamentally sound explorers, coupled with financial planning in line with your life goals, that flow-through shares’ tax benefits become worthwhile.
Strategic starting points
If you’re up for the task, you can increase your flow-through deal flow by signing up for DealRoom, checking out our trending mining news page and by perusing past Stockhouse coverage. Here are 50 notable stocks to get you started:
- Top 10 Canadian silver stocks.
- 10 best-performing Canadian gold stocks.
- 10 best-performing Canadian oil stocks.
- Top 10 Canadian lithium stocks with high-growth potential.
- The 10 largest renewable energy stocks in Canada.
Join the discussion: Find out what everybody’s saying about flow-through shares on Stockhouse’s stock forums and message boards.
The material provided in this article is for information only and should not be treated as investment advice. For full disclaimer information, please click here.
(Top image, generated by AI: Adobe Stock)
