Access to capital
Exploration is the riskiest stage of the mineral development cycle.
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Out of every 10,000 identified mineral prospects, only about 10% will lead to a drilling program (1 in 10), and just 0.01% (1 in 10,000) will lead to a new mine.
As a result, attracting capital to help finance exploration projects can be challenging, whether the exploration agent is a prospector, mineral exploration company or the exploration division of a mining company. Once a discovery has been made, additional resources are required to help develop a deposit and move into production.
Mineral exploration begins and ends with financing. PDAC undertakes a wide range of activities to help companies finance mineral exploration in Canada and abroad.
Flow-through Shares
Flow-through share explained
- A flow-through share is a type of common share that permits the initial purchaser to claim a tax deduction equal to the amount invested.
- The flow-through share regime allows public companies to transfer to investors certain exploration expenditures conducted on Canadian soil.
Updating Canadian Exploration Expenses
The basis of the flow-through share regime is transfer (renunciation) of Canadian Exploration and Development Expenses (known as CEE and CDE) to investors, who can then claim tax deductions and credits based on these expenses. The Income Tax Act defines CEE as ‘any expense incurred by the taxpayer for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada’.Â
How the Canadian Revenue Agency (CRA) administers the purpose test with respect to what is eligible as CEE can often cause uncertainty. Therefore, PDAC has worked extensively with government stakeholders to improve the clarity of CEE rules. This work has yielded several important public documents published by CRA in recent years, which further clarify the nuances of CEE eligibility for mineral explorers. See a detailed mineral exploration expenditure review table and two technical interpretations based on industry scenarios below.
Critical Mineral Exploration Tax Credit
The CMETC is a new incentive that provides investors in companies exploring for certain critical minerals a 30% tax credit based the amount invested. This is double the current 15% credit available with the Mineral Exploration Tax Credit (METC), and the legislation outlines how funds must go towards exploration for one of the following 15 minerals: copper, nickel, lithium, cobalt, graphite, a rare earth element, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, a platinum group metal, or uranium.Â
According to the legislation, funds raised under the CMETC mechanism will require a qualified person to certify the primary targets of exploration are within the listed mineral suite and that the amendments came into force on April 7th, 2022. Following the legislation, on Dec. 2022 Canada Revenue Agency published the certification form that the qualified person must fill. Please see the relevant links in the tiles below.Â
Fiscal incentives
Canada is one of the only countries in the world that has put in place a diverse array of fiscal incentives to support the flow of capital to different exploration agents. These incentives help to sustain the exploration ecosystem in Canada, from prospectors and juniors to the service and supply companies that are a key source of industry innovation.
Capital Market Reforms
Canada is a top global centre for mine equity financing, with the TMX accounting in 2020 for more than 50% of all global mining financing transactions and 33% of the value raised. To ensure that we maintain our globally dominant status, PDAC works with securities commissions and stock exchanges on various reforms that will:
- Expand access to wider & new pools of capital
- Reduce the costs of capital-raising in Canada
- Maintain investor confidence in Canadian capital markets through improved enforcement.
International Financial Reporting Standards
Since all public companies in Canada were required to transition over to the International Financial Reporting Standards (IFRS) in January 2011, the CPA Canada-PDAC Mining Industry Task Force has compiled a series of Viewpoints to help PDAC members—and the entire mineral exploration and mining industry—to incorporate the IFRS principles as they relate to the accounting practices of Canadian companies in the sector that operate in Canada and around the world.
Mineral Finance Reports
Convention Programming
The Capital Markets Program is intended to create a forum for a dialogue on a range of topics related to the financing of mineral exploration. Access to capital is the lifeblood of the mineral exploration industry.
Canada’s capital markets play a critical role in supporting the financing of mineral exploration in Canada and around the world.
