What is a flow-through share?

Flow-through shares are a Canadian financing mechanism unique to the resource sector. An exploration company that is not yet profitable cannot use the tax deductions generated by its exploration spending. Flow-through rules let the company renounce those deductions and pass them to investors, who buy the shares and claim the deductions (and often additional federal or provincial mineral exploration tax credits) against their own income.

Because of the tax benefit, investors pay a premium to the market price for flow-through shares, and the company must spend the proceeds on qualifying "Canadian Exploration Expense" within a set period.

For investors, flow-through is attractive mainly to high-income Canadian taxpayers seeking deductions, and it channels capital specifically into grassroots exploration. Two cautions: the premium and a common four-month hold can offset the tax benefit if the stock falls, and flow-through financings add to share count and future supply.