What have been the main developments at WEALTH Group (WCPD) over the past year?
WEALTH Group (WCPD) experienced a tremendous end to 2023 due to our Structured (or Charity) Flow-Through business and an equally strong liquidity provider base. Unfortunately, in 2022, we finished the year with approximately C$50 million on our waitlist, comprised of about 100 clients all searching for front-end products. At the time, we did not have enough liquidity providers, and the issuers were reluctant to raise much money at two or three-year market lows.
Our business is dependent on having strong liquidity providers and mining companies being happy with their stock; it has been a long time since there have been high spirits about stock prices, as we have been in a terrible bear market since 2011. Fortunately, December 2023 was fantastic, and we managed to essentially eliminate our waitlist. So far, 2024 is proving to be excellent as well, headlined by our record-breaking C$100 million deal with Skeena Resources in June, the largest Structured Flow-Through deal in our sector’s history.
How have changes to the capital gains inclusion rate and the Alternative Minimum Tax (AMT) impacted WEALTH Group?
The first quarter of 2024 was average. Then, we were shell-shocked by the Federal Budget in April, proposing an increase in the capital gains inclusion rate and the AMT rate. AMT is the maximum you can buy of Flow-Through Shares, the maximum you can donate, or the maximum of interest deductibility. It is imposed on the wealthy so that they cannot get their taxes down to zero. In 2021, we could shelter 40 cents of every dollar of salary. But when the 30% Critical Mineral Exploration Tax Credit was introduced in 2022, the credit wore down the AMT. Although the government gave extra tax incentives, it decreased what we could shelter and how much someone could buy due to the nuances of the tax code. Therefore, this development reduced the volume our clients can buy to 30% of their salary.
The new AMT announced in April 2024 decreased this even further to approximately 19%, which is a huge difference from the 40% in 2021. This meant that we have had to find twice as many clients. On the one hand, the government gave all these tax credits, but on the other, they were turning off the tap for Charity Flow-Through opportunities.
WEALTH Group and Peartree Securities took the lead in entering into discussions with the government to explain the hit the Flow-Through sector will take. They were completely unaware of the pain they were inflicting. Once they realized the unintended consequences, they were willing to review and amend the AMT rules and suggested changes so that we are again able to shelter 30% of every dollar of salary.
WEALTH Group was extremely busy after the budget announcement as the government gave 60 days for people to sell assets and buy more tax reduction strategies, such as Charity Flow-Through.
Can you comment on WCPD’s record charity flow-through deal with Skeena Resources?
WEALTH Group made history by closing a C$100 million deal to aid in the development of Skeena Resources’ mining operations, the largest Structured Flow-Through deal in our sector’s history. We had been working on this deal for two years, and it was the impending capital gain increase that was going to affect the corporate buyers that allowed us to collect 90 corporate clients to buy C$100 million in Charity Flow-Through. This financing was raised under a complete cone of silence to not influence Skeena’s stock; even our clients did not know the stock they were buying to ensure that there would not be any insider information leaking out.
We are extremely proud of this achievement. Records are there to be broken, and we hope to replicate or beat this deal in the near future.