Capital Raising

Lithium junior Winsome Resources raises $6.8m at an unusual 98% premium

Tue 15 Nov 22, 12:34pm (AEST)
Capital Raising 3 - man standing before a stack of coins
Source: iStock

Key Points

  • The capital raising seeks to leverage Canada's 'flow-though share' deductions
  • This offers Canada-based investors tax deductions equal to the amount invested
  • Proceeds will be used to expedite follow-up drilling at the Cancet and Adina projects in Quebec, Canada

High flying lithium junior Winsome Resources (ASX: WR1) is looking to raise $6.8m at $1.67 per share, at a staggering and rather unusual 98% premium to the stock's last close.

The company is an early stage exploration company with five project areas in Quebec, Canada. Drilling is currently ongoing, with recent success at the Adina project driving the company's shares up more than 130% since late October.

The funds raised from the placement will be used to progress follow-up drilling at priority targets at the Cancet and Adina projects. As well as advance early stage exploration activities at Winsome's other projects including Sirmac and Decelles.

While a '98% premium' is plastered on the first page of the capital raising announcement, there's certainly more than meets the eye, especially for retail investors.

Canada's "Flow-Though Shares"

The capital raising seeks to take advantage of Canada's 'flow-through shares' program that enables the investor to claim a tax deduction equal to the amount invested, subject to the individual's tax bracket. The tax benefits are available only to Canadian residents.

"Flow-through shares significantly reduce the risk of investing in resource stocks by allowing investors to recover a substantial portion of their original investment through income tax savings. For instance, an individual in a 50% tax bracket who invests $20,000 in a flow-through offering is really only risking $10,000 since he receives $10,000 in tax deductions," explains Undervalued Equity.

Of note, the higher the tax bracket, the greater the tax concession and the more breathing room you have before the investment turns red.

Winsome says the flow-through shares will be "immediately on sold through a block trade agreement to select high-quality domestic and offshore institutional investors."

This not only leaves retail investors in the dark, but high tax bracket institutional investors could sell their news shares for an immediate profit thanks to the flow-through scheme.

On the second page of the announcement, Winsome notes that it will facilitate a secondary sale of flow-though shares to 'select institutional investors by way of a block trade at $0.80 per share.'

Bottom line

It's difficult to calculate the true price of the capital raising given the unknown tax brackets of the institutional investors.

The face value 98% premium might sound like a bullish headline, but lacks transparency and fails to give retail investors skin in the game.

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Written By

Kerry Sun

Content Strategist

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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