The Cross-Border Biotech Blog

In Part 1 of this series, we mentioned two flow-through share financings completed in 2010 (chosen at random for illustrative purposes). The following discussion examines those financings in more detail, and puts them in the context of overall funds raised by the mining industry in recent years.

Silver Quest Resources (TSXV: SQI) completed a brokered private placement for gross proceeds of $8 million (see their August 27, 2010 Material Change Report). The financing consisted of 5,708,332 flow-through shares at a price of $0.75 per share and 5,721,155 Units at a price of $0.65 per Unit. Each Unit was comprised of one common share and one-half of one non-transferable share purchase warrant. Each whole warrant entitles the holder to purchase one additional common share at a price of $0.75 per share for a period of two years from closing. This offering was a private placement and all shares were subject to a four-month hold.

Quest Rare Minerals (TSXV: QRM) completed a prospectus-based offering for aggregate gross proceeds of $51.8 million (see their October 7, 2010 final prospectus). Quest Rare Minerals issued 9,470,300 Units at a price of $4.25 per Unit, for gross proceeds to Quest of approximately $40.25 million, and 2,300,000 flow-through shares at a price of $5.00 per share, for gross proceeds to Quest of $11.5 million. Each Unit is comprised of one common share and one-half of a common share purchase warrant. Each whole warrant entitles its holder to purchase one additional Quest common share at a price of $5.00 until April 21, 2012.

What points are important in assessing each these completed offerings?

Silver Quest:

• Silver Quest is a gold and silver exploration company
• The offering included both flow-through shares, with its tax incentive, and units with their pricing and warrant incentive
• The closing share price prior to the announcement of this financing was $0.71
• The flow-through share was priced at $0.75, a premium to the market
• The unit was priced at $0.65, a discount to the market
• The warrant coverage was 50%, with the warrant exercise price of $0.75
• The average daily trading volume for the month prior to the announcement was about 500,000 shares

Quest Rare Minerals:

• Quest Rare Minerals is a rare earth exploration company
• The offering included both flow-through shares, with its tax incentive, and units with their pricing and warrant incentive
• The closing share price prior to the announcement of this financing was $4.75
• The flow-through share was priced at $5,00, a premium to the market
• The unit was priced at $4.25, a discount to the market
• The warrant coverage was 50%, with the warrant exercise price of $5.00
• The average daily trading volume for the month prior to the announcement was over 300,000 shares

My assessment of these financings:  public companies in a ’hot’ industry with relatively liquid stocks have been able to complete financings using a combination of pricing, warrant and tax incentives.

Flow-Through Shares in Context:

The various Middlefield Resource LP financial reports also provide information on the total funds raised by flow-through partnerships and the value of flow-through shares issued by companies. This information does show that the amount raised in any year through flow-through share offerings is quite variable.

 The TMX Group provided the following information on equity financings in 2010:

What percentage of the equity financings in 2010 were provided by flow-through share offerings?

Mining:

• TSXV              11%
• TSX                   3%
• TSXV + TSX     6%

Oil & Gas:

• TSXV                6%
• TSX                   3%
• TSXV + TSX     4%

The $1,448 million in equity raised by mining and oil & gas flow-through share offerings is only 5% of the total equity raised by these sectors in 2010. However, this number is significant compared to the $530 million raised by all Canadian development stage healthcare companies in 2010.

In Part 3 of this series, we will assume that the flow-through structure is extended to the healthcare industry, as it deserves to be, and look at some factors which could impact the benefits to our industry.