 Welcome back to PDAC 2024 for a more serious topic, not to say that all the other companies we're discussing have been white, but this is very serious and very important to Canada's mining industry. We're talking about raising flow through and the road to flow through and the road to mining goes through First Nations. Without flow through a lot of parts of our communities are going to be hurting. Today we have Mr. Bernbaum from Pairtree, an expert in flow through financing. Oh, thanks so much. You're welcome. It is true. You've only been in the industry how many years? About 17. About 17. So I'll call you an expert. For those of people who don't know, why don't you describe what flow through financing is? Well, I mean historically flow through financing is merely the ability of a junior mining company, exploration company, to raise public money where the funds that are being used are used for future exploration, for new exploration. And the deductions that any other company might take in hiring labor or otherwise are flow through to that first subscriber who's funding that activity. It's almost like a limited partnership. For tax purposes, it's exactly like a limited partnership. A company raises a million dollars, it has to spend a million dollars. The umpire here is CRA, so the tax authorities say if you properly spend it, there's no issue and it's easy to spend money. Right. So that's on drilling, mapping, sampling, engagement with First Nations, all count for flow through. And at this point, the flow through regime is all, well not this point, but for as long as I can remember, most all equity for juniors come through the flow through regime. So you know, 90% of all exploration dollars are deployed through flow through and that's about a billion to a year. And then we added a variation on that theme back in 2006, 2007 with the advent, which is the charity flow through piece. We're going to leave that part to the side. That gets a little confusing, but you can talk about that later. So flow through is actually called a government incentive security. It's right in the Income Tax Act. It is. You and I were chatting that I had an accountant tell me last year that it doesn't exist. Okay. I mean, I think I would find that to be, that should be an ex-accountant. I don't think I've ever run across an accountant that said it doesn't exist. Yep. The flow through funds used to dominate the space. I mean, there were funds that were set up by Ned Goodman. Like a mutual fund or L.P. Where the L.P. would just, would then go out and buy, would buy flow through shares in the companies. And in the old days, it was two sorts of capital. What were the flow through funds? And the other one was direct retail sales. Right. There are no, there are no, there are no more brokers calling you and saying, you know, Sarah, you got this great, I got this great deal. It's, you know, it's Cisco, it's new found gold. You should, you should invest. It's only 83 cents. That doesn't happen anymore. So anybody who's buying flow through once removed through the flow through funds, which represents like 10% of the market are doing it purely for tax value. They have no clue what, you know, there's no, there's no direct linkage or very little direct link with linkage between the company itself and the, and the, and the investor. And that's, and that's really unfortunate. Mutual fund holder doesn't care what the mutual fund buys as long as they get their tax credit. And as long as there's a tax credit and then, and as well, some after tax returns. So in years, when those funds, when those limited partnerships, nine points, a good example, or Maple Leaf, for example, if they're showing decent returns, then, you know, they can continue investing. But the reality is they're not raising a lot of money anymore because the returns in the space are, have been, you know, less than stellar. It's been a tough couple of years. Very, been a very tough couple of years. And the government of Canada is not helping much with the changes around alternative minimum tax. Now, I know it's a complex subject. We don't have the days it would take to cover it. But the changes to AMT are impacting flow through. Oh, for sure. I mean, basically, the best example of a tax incentive is just to step back and maybe give you the foundational piece for a minute. In 2022, the federal government did something very smart. And that is they introduced the Critical Mineral Exploration Tax Credit, which was a 30% tax credit. You buy a thousand dollars of flow through, you write off a thousand dollars. If it's for exploration in critical minerals, lithium, cobalt, whatever, it would have a, it would, you would get an additional $300 of tax credit, which is actually ratcheted back the following year. And that was a very smartly timed and we understand a response to the U.S. legislation that took a beat against the United States in the inflation reduction act. From April 22 to the end of March 23, the first 12 months, $350 million of a creative investment came through the flow through regime. Flow through shares issued to fund exploration. Our clients, we did 225 million of that. That's a lot. But a tax incentive is only as good as the access to the tax credits and deductions. In order for somebody to buy $100,000 of flow through, they need about $600,000 of regular income just to write it off. In our format, they need closer to about $900,000 of income because the shares are not kept, they're donated and sold. And so the result is that these new AMT rules add back into your income, take away some of the deductions and credits. And basically, all other things being equal, the AMT rules that are supposed to come into effect as of January of this past year, January 124, will reduce all flow through and all exploration capital by about a third. We're talking about $300 to $400 million. That's the number I keep hearing getting batty to vote. Now, there's a huge number. There's a budget coming up in April of this year, and there's some hope that there'll be clarification and edits to the AMT rules. Yeah, we are... This is sort of, I feel like the great Hallmark movie or the great movie, you know, Princess Bride, you know, this issue isn't dead, it's nearly dead, you know, Billy Crystal. It's nearly dead. The government is very desperate for additional tax income. The AMT rules have broader application against capital gains, especially. And flow through shares are particularly exposed to capital gains change in the AMT rules. The result again is people will only be able to buy about two-thirds, come back to a little worse, maybe only 60% of what they previously bought in order to access all the tax credits and deductions. And the reality is, if they're not accessible, who's going to buy them? There goes the incentive. So you mentioned Quebec. There's not just a national aspect to flow through. Each province has its own mechanisms. Each province has additional, not all provinces, but most provinces have additional tax incentives to invest in exploration in that province. Quebec understands tax policy better than any other jurisdiction, probably anywhere. I mean, I can tell you that, you know, my background is I have a law degree and practice tax. When I got the first ruling back in 0607 and then the fall on tax rulings from the CRA, they were very sort of, they read the Income Tax Act, they look at it through the lens of lawyers, more or less. Quebec was a very different experience. It was, you know what our current credits are, you know what we're currently giving up? Show us the debits and credits. Show us that we're no further behind or further ahead in your format. If it works, we'll do it. They're very pragmatic and they're very supportive of what we're doing, but they're very supportive of the mining industry. And, you know, I mean, if you saw the Pierre Lasson, the Oostre article in the Globe in Northern Minor, I think, they talk about the pension funds not investing. In Quebec, they actually do invest. In Vestemont, Quebec, the Kess, they invest in their own mining industry in Quebec, nowhere else in the country. But each of the provinces have added additional credits. Saskatchewan, Saskatchewan now 30%. The problem is there aren't a lot of taxpayers in height, you know, there just aren't enough taxpayers in Quebec, in Saskatchewan, rather. Now, that's not to say that individuals can't take advantage of flow-through. People can write a check for $1,000 to the issuer or $5,000. But it's hard to run an exploration program on onesies and twosies. Absolutely. So what do you do? Like, I mean, an issuer, it's not worth the legal fees unless the issuer is raising a million, a million and a half dollars. I mean, deals are done at less, I mean done at $300,000 and $400,000 at a time. But in order to make it rational, an issuer has to have enough money in the till to enter into a drill program with some subcontractor. Right, and then there's a window to it, right? It's not like you get the money, the investor invests now, the issuer gets the capital, and it has to be spent within a certain period of time. You can't sit on it forever. No, and in fact, that's absolutely true. So if an issuer raises a million dollars now in the middle of the first quarter of 2024, I think we're in 2024, some days, they will renounce, even if they haven't spent all the money by the end of this year, the investor still gets their deduction for 2024, and the issuer has to the end of 25 to spend the money. So the renunciation is a tax process, which is different from the actual going in the field and doing the work. Right, but they will, but they have to go into the field and they have to do the work. So it's a flow-through of an expense. So it's a Canadian exploration expense that gets flowed through to the first subscriber. And the only tax risk is that the issuer doesn't properly spend the money, and the CRA is very good at looking at these things. But generally, absent a CFO that is entirely, like maybe the accountant you were talking about earlier, it's very rare that they don't properly spend the money. It's like we've done, in the last 17 years, we're well over 3 billion a flow, and we've had seven instances where we've had an issue. And in each case, there's an indemnity in the retail investor. Our investors got repaid out of it. And it wasn't exactly what everybody wanted to see happen, but it was nobody was hurt and everybody was happy. And you hear the stories about a company getting behind, it's September, they can't spend all the money properly because they don't have a helicopter or whatever. And so they can joint venture that money into another project and honor their obligations that way. They can earn into another project, absolutely. You know, it's funny, I've gotten calls over the years and somebody will say, the drill holes are like, there's nothing there. And I have to spend the money. I go, no, you don't. Just pay back half the money under your indemnity and keep it as hard dollars. So even there, they've got the flexibility to deal with it without with being true to the regime. It's a brilliant piece of engineering. I've told people that every person in Canada who pays tax should invest in some flow through, even if it's only $1,000. And that said, we've been lobbying. We have a full time, we are a registered lobbyist and we've been lobbying the federal government for a long time in the provincial government in Ontario for a long time to expand the flow through regime. You know, talking about Saskatchewan, Saskatchewan actually brought in a 30% additional tax credit. So somebody in Saskatchewan who pays a fair amount of tax can say buy just using an easy number, $100,000 of flow through, get a 30% federal tax credit, get a provincial tax credit of 30%. There's a little adjustment to the federal one that's not important for this discussion. And end up with an after tax cost of investment of around 30 cents on the dollar. 30 cents at risk of the dollar that's been invested. Until they go to sell the shares. At that point there's a capital gain on the 30 cents. But even then, so even adjusted, their after tax cost in investing in junior mining in Canada is 33, 34%. All these numbers, by the way, are on the PDAC website. And your website as well. And on our site as well. So what you've also done is you've taken regular income and converted it to a capital gain, which is taxed at a better rate. That's true. I prefer to think of it as my deduction in Toronto results of say $100,000. Results in a taxable activity in Timmins. Good pick, from Timmins. You're from Timmins. God bless Timmins. But that's the reality. Look at the first transaction of any size that gave our firm credibility was with Tony McCooch at Lakeshore Gold. And that was the first quarter of 2009. But flow through is very egalitarian. It's not just for the big funds. It's not just for big investors. Everybody here at PDAC, who's Canadian taxpayer, should be writing a check to an issuer for flow through. The problem is how does the issuer access those checkbooks? So the brokers don't exist anymore, right? So he said, do we need a tech platform to say, okay, you can come on and then you have to go to the OSC and figure it out? But I mean, you would think that the evolution of retail investment, especially in flow through would be through that mechanism. The only other way a retail investor can come into a flow through offering, if they want to keep the shares for investment, is through one of the flow through funds. But those flow through funds have not fared well over the last few years. And I think people are, again, it's not a lot of money that's being used, that's being raised anymore through the flow through funds. A lot of money is made during the down cycle. Absolutely. It's when the market is down. Be greedy when others are fearful. You know, a long, long, long time ago, at the very beginning of the, before I even found the business, I mean, somebody, an old timer in mining said, you know, Ron, you know a little bit because you ran a fund for real estate. Mining exploration is just another real estate play. You know, if you think of the person who buys farmland north of Toronto and brings it into the official plan and then gets it, and then gets it a site approved for subdivision land, they don't have the capacity to build out the subdivision and spend $4,000 a foot in putting in the roads and the sewers. They sell to a developer, right? Mining exploration is exactly the same thing. You know, a couple of geologists, folks get together, they find a claim, they add value to the claim if there's actually, if there's gold in them, their hills, you know, they're gonna have somebody further up in the food chain. It's the mining up cycle. Exactly. So right now, everything's depressed. Gold is high, but the underlying equities are low. It's a great time to buy. Silver's up $23, $24. But the silver, I mean, look at the issuers. They're not, unless you're a producer. But if you're an explorer, there doesn't seem to be any money in the system. You know, and now there's even greater uncertainty in this system because there's concern around the table now that the mineral exploration tax credit, the broader historical 15% tax credit isn't gonna be renewed. And that will add to this AMT angst. It's, the government's not being, you know, they've come here and they've said we are supportive of the industry, but on the tax side, they certainly haven't demonstrated that. I was enjoying talking to you. That's always a slice. The road to mining in Canada goes through First Nations. Thank you for talking to us about flow through. Peter Clausi signing off from PDAC 2024.