Flow-through shares program shows promise: though studies show the tax credit program has achieved some results, more work is needed to spur investment in exploration. (Mining).

Super flow-through financing has arrested the decline in junior mining company expenditures, but the turn-around is weak, says David Comba, director, issues management, Prospectors and Developers Association of Canada (PDAC).

"The PDAC is far from seeing the activity levels it had hoped," Comba says.

Comba presented a first-year report card on super flow-through shares at the Northwestern Ontario Mines and Mineral Symposium in Thunder Bay from April 9 to 10.

He displayed the findings of a flow-through tax study by Bill McGuinty, industrial liaison geologist with the Ontario Geological Survey. Since the announcement of tax credit programs there has been $69,336,000 in flow-through money and $39,588,345 in other equity raised in Ontario.

The tax study shows that 79 companies raised $69.4 million. Five of the 79 companies raised almost 39 per cent, or $26.9 million. Two of the five are operating companies.

The other 74 companies raised between $15,000 and $2 million, with an average of $574,000. Comba says this means the exploration projects are relatively small and financed by private placements rather than prospectuses or offering memorandums.

Comba says there are a number of things that did not happen as a result of introducing flow-through shares.

"Partnership funds have yet to participate at historic mineral expenditure development assistance levels, although they did pony up close to $60,000 in advertising on expectation of participating," Comba says.

"Only one significant fund participated..." he says.

"For the last five years, Canada has been setting consecutively record-low levels of grassroots exploration expenditures," Comba says.

He says the PDAC has an objective to increase off-mine site exploration expenditures in Canada to more than $350 million per year. The federal government budgeted for a $300-million uptake in 2001.

"Exploration is vital to ensure that mining remains an integral part of Canada's technology-driven, knowledge-based economy," he says.

Comba says major changes have been implemented to turn things around, but there is a "perception problem."

"The federal 15-per-cent tax credit does not sound exciting," Comba says, but it is equivalent to a 36.7 per cent federal tax deduction. In Ontario, the five per cent tax credit is equivalent to a 30 per cent provincial tax deduction. Provisions for carrying the tax credit back three years, or forward 10 years are unknown.

Comba has suggestions for improvement:

* Extend the buy period from December 31 to the end of February, which coincides with the end of RRSP season;

* Expand the buy eligibility rule from individuals to cover bona fide mining companies;

* Allow 15 per cent of money raised to be used by eligible companies for financing costs such as offering memorandums, prospectuses and broker sponsorship; and

* Extend the spending deadline from Dec. 31, 2003 to Dec. 31, 2004 in order to allow 2003 to count as a full year.

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