The flow-through share system, which has been credited with breathing life into the Canadian junior sector, was not necessarily positive in the long run, particularly as increasing numbers of companies grow to rely on the plan, David Watkins, who heads TSX-listed exploration and development firm Atna Resources, suggested on Wednesday.

Flow-through shares, introduced in their current form in Canada in 1972 (and extended by Finance Minister Jim Flaherty in his budget speech on Tuesday) allow exploration companies to transfer specific kinds of exploration expenses, on Canadian properties, to individual investors.

Watkins also raised questions over whether the system was necessary, in the current environment of high commodity prices.

“I think that flow-through shares are a subsidy, a tax subsidy, to the industry and, particularly when the industry is in good times, we as tax payers ought not to be subsidising that industry,” he said to Mining Weekly Online after a presentation.

“It's a distortion of the tax system.”

However, Watkins pointed out that, because of the number of companies which have become reliant on the system, “it has to be managed carefully if it is to be discontinued”.

According to a TSX presentation, there were 1 373 mining companies listed on the group's exchanges on December 31, 2007, well above the ASX, LSE, Amex, JSE or NYSE.

South African Finance Minister Trevor Manuel said last week that the National Treasury had scrapped plans to introduce flow through shares, and would instead propose a 50% tax deduction for investments in mining juniors or explorers.

PRODUCTION BY YEAR-END

Atna, which is proposing to merge with US-based peer Canyon Resources, expects to bring Canyon's most advanced project, the Briggs mine, in California, into production by the end of the year, Watkins said on Wednesday.

The combined company, which would be domiciled in Canada, would own four gold projects with near- to medium-term production potential, all in the western US.

Possibly the most lucrative of these, the Pinson project, in Nevada, is a 70-30 partnership with gold giant Barrick Gold.

At Pinson, which has an estimated 2,2-million ounce resource, Barrick is exercising a 'claw-back' option, and will spend $30-million before April next year to increase its holding to 70%.

Watkins said that the Pinson property was a “similar style of deposit” to the Cortez project, also in Nevada, which Barrick announced last week it would take full ownership of, after paying Rio Tinto $1,7-billion for the diversified miner's 40% share in the project.

“I think that there's actually potential, over the next year or two, to see that kind of value unlocked from Atna's shares as well,” he commented.

Watkins said that he expected the project to be ready to begin production almost immediately after Barrick meets the $30-million expenditure requirement

Atna expects Pinson to produce at least 125 000 oz/y, he said, although “Barrick are doing their best to make it a much larger deposit”, either through underground work currently under way, or by exploiting the deposit as a “super pit”.

Canyon shareholders will vote on the merger on March 6, with the transaction expected to close the following day.

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