"The introduction of the new 30% critical mineral exploration tax credit by the Canadian government has been a really important driver of flow-through financing and our overall business."

Lisa Davis

CEO, PEARTREE SECURITIES

November 25, 2022

Can you give an overview of PearTree Securities and how the company has evolved over the past few years?

Since Covid started, PearTree has increased our financing capacity by approximately 75%, and we have grown from C$300 million of flow-through financings annually to about C$500 million plus. Things have slowed down to an extent in recent times, but our results are still very strong. Traditionally in Canada the financing focus has been on precious metals, but the biggest story these past two years has been battery metals and other critical minerals. The introduction of the new 30% critical mineral exploration tax credit by the Canadian government has been a really important driver of flow-through financing and our overall business. The legislation has not been formally enacted, but whenever there is a budget measure introduced, it is typically made effective as of the date of the budget announcement. The draft legislation that has been released has already resulted in explorers and producers of critical minerals getting premium pricing for their flow-through share issuances. In the short period of time since the budget announcement, we have already financed over C$50 million of flow-through share offerings for critical minerals. I believe that this is really going to be a big driver of new exploration and discoveries in Canada in the coming years.

Does the market shift toward battery metals mean PearTree is now seeing flow-through capital come from a different set of investors?

Flow-through share investors are highly focused on the benefits they get from the tax regime. Our clients are philanthropists and are using the shares for donation purposes - so they are not long-term investors - but the donation arrangements allow investors purchasing from the charities to enter the space, and there has been a bit of a shift there. There is significant interest from Australia in battery metals and other minerals that will help the green economy. Our purchasers are often institutions with ESG considerations, which can sometimes write off mining. However, they are now starting to look at mining from the perspective of furthering clean technologies and the green economy. Critical minerals have also broadened the potential investor base at the back end of the structured arrangements we do.

To what extent can you measure the benefit that flow-through and charity tax credits provide to society and the mining community?

The mining community needs significant capital, and the benefit of being able to raise capital is the creation of economic opportunity and jobs, particularly in the far north of Canada where the mining industry is the largest employer of members of indigenous communities. It is thus well aligned with the Canadian government's policies around northern sovereignty and northern economic development. The drive towards self-sufficiency in critical minerals is also encouraging the general economic prosperity of the country. It remains challenging to raise early-stage exploration capital – it is like venture capital at its riskiest. However, by having the incentives that are provided by the flow-through tax regime, Canada has been able attract significant investment that certainly would not have been there otherwise. By having the government authorities embrace the donation arrangement in particular, it allows us to put together different tax incentives - both the donation tax receipts you get when you donate shares, as well as the flow-through share tax deductions and tax credits. This has increased the basket of tax benefits, and the greater the tax benefits to the initial subscriber, the higher the premium they will be willing to pay for flow-through shares. The result is less dilution.

We have the expertise to make any flow-through offering better by expanding the universe of potential investors and minimizing dilution. Being at the forefront of critical minerals exploration financing, we are supporting Canada’s green energy transition and critical minerals self-sufficiency.

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