What is Flow Through Share Donation Financing?
Lisa Davis LL.B, is the CEO of PearTree Securities. Drawing on her extensive advisory and business experience in the investment industry, Lisa oversees the strategic direction of the firm and is responsible for the legal aspects of the firm’s business. Lisa gained her in-depth knowledge of securities regulation at the Ontario Securities Commission and as General Counsel for a specialized investment fund business. Through private practice, Lisa specialized in corporate and securities law.
Dedicated to the Canadian resource sector, Lisa is a Director of the Prospectors & Developers Association of Canada (PDAC) and co-chairs the Finance & Taxation Committee. Here she tells us all about PearTree Securities.
PearTree Securities Inc. is a subsidiary of PearTree Financial Services Ltd., an exempt market dealer and a specialized fund manager. PearTree created an investment platform for High-Net-Worth Canadian clients to access the tax benefits available in resource exploration and development activities funded through the issuance of flow through shares, for the ultimate purpose of lowering their after tax cost of philanthropy.
A flow through share is a unique Canadian hybrid instrument made up of a common share and a tax benefit available only to the first subscriber. Our platform captures the tax benefits for our clients enabling the sale of the shares stripped of tax value to global equity investors at a discount. Since January 2016, PearTree has deployed more than $500M (CDN) of capital with equity acquired from PearTree by global institutional and strategic investors, at material discounts to market.
Junior resource companies rely heavily on Canada’s flow through share system to raise high risk capital for exploration and development. Flow through shares enable these companies to “renounce” eligible expenses funded with subscribers’ money. These investors then claim these expenses as deductions for tax purposes. However, flow through share tax benefits are available only to Canadian resident investors, a retail market.
PearTree’s platform increases access to capital for junior resource companies by expanding the capital pools available. We secure the highest price possible for the share issuer, with less dilution to existing shareholders.
Our clients are a triumvirate – the resource sector (mining and oil & gas), the banking/brokerage community and the “end buyer” investors, often international. We offer the flexibility of being able to facilitate financings by public or private issuers and can participate in all or part of a flow through financing. PearTree provides additional demand from a larger, more diverse investor base and the potential for higher remuneration on larger financings.
Our format adds no incremental cost to the flow through financing process. We are paid by our clients with no fees charged to the share issuer, bank or broker or the end buyer. Therefore our program doesn’t interfere with any existing fee arrangements.
The PearTree format is well-known in Canada and our goal is to grow market share, retain and grow trusted relationships and expand the market through adoption of this financing platform by international investors. By providing optimized investment access to high-quality Canadian resource stocks, we create new opportunities for investment in the Canadian resource exploration sector. Our format is well poised to expand the universe of capital sources, bringing a unique value proposition directly to a worldwide investment community.