This article is a sponsored feature from Mining.com.au partner Pivotal Metals Limited. It is not financial advice. Talk to a registered financial expert before making investment decisions.
Quèbec in Canada is consistently in the top 10 for investment attractiveness in the Fraser Institute’s annual Survey of Mining Companies. Last year it rose to fifth spot, up from eighth in 2022.
The province is responsible for one fifth of Canada’s mineral production, which covers about 30 commodities, making it the most diverse resource base in the country.
Quèbec covers 1.7 million km2 and on that vast land expanse sits nearly 320,000 mining claims, 21 producing mines, and 33 projects that have reached the development stage.
Over $4 billion in private mining investments were reported for 2022, while shipments in 2021 reached $19.33 billion.
Mining and forestry are the two major economic contributors in Quèbec. The provincial and federal governments collectively bank over $2 billion in revenue each year from the mining sector.
Ivan Fairhall, Managing Director of Pivotal Metals (ASX:PVT) – which is advancing the copper-dominant Horden Lake Project in Québec, says a lot of money has flowed into the region in the past few years, for lithium projects in particular, but other projects as well.
“The population centres are in the south, and the northern areas don’t have much going on besides mining, which is coveted for its real opportunity to bring economic development,” he tells Mining.com.au.
“Quebec has a long history of mining, so there’s a lot of infrastructure and skills in place to support mining. They have some of the cheapest power in the world and there’s a copper smelter — these are structural advantages benefiting discoveries in the region.”
So given the importance of mining to Québec, and Canada more broadly, how do the provincial and federal governments entice mining companies and investors to the table?
Canada a magnet for mining capital
The answer lies in what is known as ‘flow-through’ financing, which is a type of common share that allows investors to reduce their taxable income.
“Flow-through incentivises individuals to support mineral exploration within Canada, which is a big driver of economic activity, particularly in regional and remote areas,” Fairhall says.
This type of financing contributes over 65% of the funds raised for exploration undertaken in Canada, according to the Prospectors and Developers Association.
For companies, utilising flow-through results in shares being issued at a premium, which Fairhall says is made possible by generous tax concessions from the federal and provincial governments.
“This greatly lowers dilution for all exploration-related expenditure versus other jurisdictions,” Fairhall explains.
“The level of credits vary, but companies who are exploring for critical minerals in Québec benefit from the highest flow-through credit in Canada, meaning realised premiums for companies can be up to 100%.”
What is becoming increasingly common is a ‘structured flow-through’ scheme.
In this scenario, a ‘front-end’ investor will participate in a placement being done at a premium to a company’s share price and then immediately block trades those shares to a ‘back end’ ultimate investor, who may not qualify themselves for the tax credits.
This ‘back end’ investor buys in at the price you would see a conventional financing being done at.
The level of tax credits, plus the proceeds of the sale, mean the front-end investor is able to pay a premium, reduce their taxable income, pay less tax at tax time, and not carry equity risk.
Fairhall says the main concern he hears is that if flow-through attracts investors who are more interested in a tax credit than the fundamentals of the business, then what overhang does that create?
“This potential issue is solved through the structured flow-through deal, whereby those tax credit-motivated investors immediately trade their shares to conventional resources investors, who buy it as if they were participating in an ordinary placement,” he explains.
“It is an elegant way to remove potential share overhang by ensuring incoming investors are aligned similarly to existing investors.”
Quèbec explorers the biggest beneficiaries
Quèbec provides the highest provincial-level tax incentives across all of Canada, enabling investors to deduct up to 120% of the cost of certain qualifying exploration expenses incurred by non-producing companies.
Fairhall says the system has been set up to incentivise investment.
“The tax savings made available to investors are so great in Quebec, that they can afford to subscribe at a huge premium and still receive a net benefit — effectively sharing some of that saving with the company by subscribing at a premium,” he says.
“People are effectively lining up to invest in Canadian exploration expenditure.”
“People are effectively lining up to invest in Canadian exploration expenditure.”
There is also no limit to how often, or how much, flow-through funds can be raised by a company.
Patriot Battery Metals (TSX:PMET), for example, raised C$125 million ($136.4 million) in 2023-2024 to explore its lithium project in Quèbec.
“The only thing to keep in mind is monies raised need to be spent on eligible exploration-related expenditures on nominated projects within 24 months,” Fairhall notes.
In 2023, Pivotal raised about C$3.5 million at an 84% premium to its share price at the time to fund its first exploration program. Traditionally, ASX-listed companies would undertake capital raisings at a discount to their share price.
“This means that for a given number of shares issued, we are able to complete much more field work than we could have otherwise done anywhere else in the world,” Fairhall says.
He says while this system seems to many investors “too good to be true”, it is actually just representative of the level of government support for the mining sector in Canada.
“They’re making a conscious decision to forgo significant tax revenues to support the discovery of new critical metals mines,” Fairhall points out.
Another benefit to cash-strapped juniors is that they receive the premium amount up-front rather than having to claim it back at tax time. This differs to other jurisdictions that might offer research and development refunds on expenditure, where those amounts must be raised and spent before they are returned, long after the work is done.
The cash received also isn’t solely restricted to just drilling. A company can use the funds to cover most costs related to pre-development, including metallurgical testwork, feasibility studies and payments made to Canada-based employees who are focused on delivery of these work programs.
“For a company at our stage, the main things that you can’t pay for out of flow-through, or what they call qualifying expenditure, is your corporate overheads: accountancy fees, legal fees and things like that,” Fairhall says.
Québec’s copper-rich reserves Pivotal to supply
Quèbec is a major contributor to the global supply of copper, which is on Canada’s list of critical minerals. The Abitibi Greenstone Belt, which extends from Quèbec into neighbouring Ontario, has produced over 180 million ounces of gold and more than 400 million tonnes of copper-zinc ore since the early 1900s.
Pivotal’s Horden Lake Project is located just four hours by road from Glencore’s Horne copper smelter — Glencore also operates a copper refinery in Montreal — and the Sudbury nickel smelter just across the border in Ontario.
The project also sits 140km north of Glencore’s Matagami mine, which recently shut down after nearly 60 years producing copper concentrates.
Pivotal’s focus now at Horden Lake is continuing to grow and enhance the discovery on the property. The current deposit is open at depth, along strike, and in parts is missing multi-element assay information, meaning metal content is understated.
The company is also working to define potential Horden Lake satellite deposits, after having discovered a new mineralised structure 400m to the west, and defined a highly prospective 700m of strike extension.
“Given the low-hanging fruit we have been able to access on Horden Lake with our very first program, we are particularly excited about the prospectivity of the remainder of our property and surrounding region, which has not been systematically explored with modern exploration techniques,” Fairhall says.
“Further afield we have a very large 157km2 100% greenstone holding in our BAGB project, which hosts multiple exciting copper, nickel and gold discoveries that we can build on with further exploration.
“Our Midrim-Alotta Project is a great example – very high grades already discovered, and our recent magnetotellurics geophysical survey has delineated a huge intrusive system that has acted as a plumbing for those very high-grade surface discoveries.
“We have a lot to keep us busy, but love working in Quèbec and are always on the lookout for value accretive opportunities.”
Write to Angela East at Mining.com.au
Images: Rochelle Padua, Pivotal Metals and PDAC
