I wanted to find out a little bit more about private placements, so I went out to the TSX web page to get the scoop on what they actually are. Here's what I have discovered - I'm using Spider Resources' latest private placement NR for help explain things:

SPIDER RESOURCES INC. ANNOUNCES BROKERED PRIVATE PLACEMENT OF FLOWTHROUGH COMMON SHARES

TORONTO, ONTARIO--(Marketwire – April 30, 2009) -

Spider Resources Inc. ("Spider") (TSX VENTURE:SPQ), is pleased to announce that it has entered into an agreement with IBK Capital Corp. (“IBK”), whereby IBK will place up to 78,750,000 common shares (issued on a flow-through basis) of Spider on a best efforts basis for gross proceeds of up to $3,937,500 by way of a private placement.

Proceeds raised through this private placement will be used to finance an expanded exploration program on Spider's projects in the McFauld's Lake area.

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You will notice that IBK Capital Corp. is the 'broker', and it has been given the job of placing the common shares on a flow-through basis. Here's an explanation of flow-through shares:

Flow-Through Shares are a tax-advantaged investment in the Canadian natural resource sector. Taxpayers in the highest marginal tax rate can reduce their taxable income and receive refundable or non-refundable tax-credits depending on their province of residency.

Essentially, exploration or mining companies who issue flow-through shares renounce the deductions that would normally be available to the company and provide the deduction to the investor. In order for the investor to benefit from the flow-through shares the company must spend the flow-through dollars on exploration in Canada. This includes most non-development stages of mining including ground sampling, geophysics, drilling, etc.

Flow-through shares are available through some funds or directly in a specific company through an investment advisor.

This explanation jives quite nicely with the last paragraph in Spider Resources NR. Moreover, the issuance of flow-through shares is considered a 'material change'. Here's what the TSX says about material change in private placements:

The Private Placement funding must be specifically allocated and necessary for the Material Change. A general statement that the funds are for unspecified working capital requirements is not sufficient.

The TSX also had this to say in 2002 on private placements less than 10 cents:

... the TSX Venture Exchange introduced certain new procedures designed to assist issuers in effecting private placements. These new procedures permitted Issuers, on a one-time basis only, to effect a private placement at a price of less than $0.10 per share to a minimum price of $0.05 per share, provided that certain conditions were satisfied, as set forth in Policy 4.1 – Private Placements.

The conditions that must be satisfied in order to rely on these procedures have not changed and are reflected in Policy 4.1

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So Policy 4.1 is the document that speaks specifically to 'issuers' (in this case, Spider Resources) of private placements less than 10 cents.

Finally, the Spider Resources NR notes that the private placement is done on a 'best effort' basis. Here's what I found on this terminology:

Instead of working on a firm commitment basis, underwriters can work on an agency basis, also known as a best-effort basis… the offering price is assured, and the maximum number of shares is specified. But in a best-effort offering the underwriter pledges to sell as much as it can, but not to buy (or promise to sell) the full offering.

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So the prospect of an extra $3,937,500 for exploration by Spider Resources is far from guaranteed.

Hope this information helps. Comments welcome.

Snug