Letters to the Editor Criticism of flow-through unjust to mineral

The concept of flow-through is simple and fair, not a “gimmick” as reported elsewhere, nor “special treatment” as stated in your editorial. Profitable companies have long been able to write off corporate exploration costs against revenue before declaring their taxable profits. Flow-through share financing gave junior companies the same advantage, allowing them to pass their writeoffs through to investors.

In fact, flow-through financing provisions have existed since the 1950s. However, during the mid-80s, junior and unprofitable major companies al ike used this financing vehicle to sustain exploration teams and programs that otherwise would not have existed. With tax reform announcement in 1987 and heavy marketing of flow-through shares by investment funds, an extraordinary amount of money was raised and spent in a relatively short period of time.

Many of us agree with your position that this pace of exploration expenditure was not always prudent or efficient. However, your message that flow-through funds were mismanaged is based merely on that aberration, not on the total period of flow-through funding. It is based on the experiences of those companies which accepted more funding than they could efficiently manage, not on the more important, well-managed companies which discove red many ore deposits during a period of otherwise sterile public financing. Golden Pond (Inco and Golden Knight), Silador (Noranda and Cogesco), Eastmain (MSV), Lindsley (Falconbridge), Louvicourt (Aur Resources and Louvem), Keirans (Aur Resources), the Mishibishu deposits (Muscocho, Central Crude, Noranda and Echo Bay), and other economic discoveries have all resulted from flow-through funding.

Your regrettable statement that those who spent flow-through funds “lowered their professional standard” is an affront to the many of us who managed programs financed in this way. Although your editorial briefly acknowledges the good done by flow-through financing, its over-all effect is to condemn the whole because of the excesses of a relative few. In the same way, one might recommend that all automobiles be condemned because of a few fast drivers.

Your editorial is the product of a prophet using hindsight. We consider it essentially unjustified and, because of its broadside nature, fundamentally unjust to our industry. Robert Ginn President Prospectors and Developers Association of Canada

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