Quebec study shows flow-through’s value

Flow-through financings between 1980 and 1985 led to 25 potentially profitable mineral discoveries in Quebec, according to a recent study commissioned by the Quebec Prospectors Association and conducted by two independent consulting firms.

The association and its counterparts in other provinces as well as the national association are asking the federal government to maintain the flow-through provisions when it introduces its white paper on tax reform. Finance Minister Michael Wilson has promised the policy paper sometime this spring.

Flow-through financings permit individual Canadian investors a 133% tax deduction on money invested in mineral exploration in Canada. Until 1980 in Quebec and 1983 in the rest of Canada, the deduction was available only to corporations. The name “flow- through” is derived from provisions that have allowed companies to pass on those deductions to individual investors.

The study also found that:

— Of the 25 discoveries, eight have already proved economically viable at current metal prices.

— Of those eight, five were made by junior exploration companies and three by senior companies with money provided by juniors.

— The federal and Quebec governments made a $300-million net gain on tax receipts as a result of the financings.

— Some 66,660 jobs were created, 50,000 of them jobs that would not have been created if there had been no flow-through financings.

The study says job creation was largely in regions that traditionally have suffered high unemployment. For example, the study credits flow- through financings for reducing the unemployment rate in northwestern Quebec to the province’s overall unemployment rate for the first time since 1970.

What’s more, says Alan Bossin, managing director of the national association of prospectors and developers, flow-through investors are Canadian individuals, not large corporations. As a result, less government assistance is required for the regional development that comes as a result of mining activity.

“The money flows more naturally,” Mr Bossin says.

To evaluate the effects of the tax costs, the study based its calculations of the financial tax spinoffs on the impact of the exploration cash and that of ore discoveries and their future development.

The national association says the findings of the Quebec study are “consistent with what we know is going on across the country.” It estimates that without flow- through financing, exploration expenditures would have declined over the past four years.

The PDA estimates that, using constant 1985 dollars, in 1983 some $308 million was spent on exploration, $38 million being flow- through funds. In 1984 total spending was $420 million with $145 million coming from flow-through while in 1985 over $500 million went into exploration with $300 million coming from flow-through.

The PDA estimates that 1986 figures will show about $750 million, in 1986 dollars, was spent on exploration with $600 million coming from flow-through.

The $110,000 study took about nine months to complete. Almost half of the cost, $50,000, was provided by the Quebec government while $10,000 was provided by the Prospectors and Developers Association of Canada and $5,000 by the Canadian Diamond Drillers’ Association.

Some mining communities also contributed to the cost with the Quebec Prospectors Association paying for the balance.

The study concludes that without the flow-through financings, junior mining firms in Quebec would be forced out of the mining business resulting in the virtual elimination of junior mining companies.