TSE permits discount on private placements of flow-through shares

The Toronto Stock Exchange says it will permit listed companies to issue flow-through shares through a private placement at a discount to the market price of up to 15%.

The exchange says the policy change is in order to offset tax reform proposals that will make flow-through shares less attractive to investors. The 15% discount is the same as that available for private placements of stock other than flow-through shares.

Flow-through shares are shares issued specifically to raise funds for mineral exploration. Such an investment therefore qualifies for what is called an earned depletion allowance, permitting the investor to gain a tax deduction equal to 133% of his investment. Federal tax reform proposals, however, would see that earned depletion allowance cut back to zero by the end of 1988 reducing the tax deduction available to 100%. Private placements involve the issuance of a large number of treasury shares to 50 or fewer investors. Private placements do not require the preparation of a prospectus as when issuing shares to the public at large.

The new tse policy will only apply where the private placement is negotiated on an arm’s-length basis. A similar policy is already in place on the Vancouver Stock Exchange.