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Shareholder Tax Considerations
Cascadia Spin-Out
Hecla’s acquisition of ATAC was not a tax-deferred rollover transaction. Former ATAC shareholders will likely have incurred a capital gain or loss at the time of transaction, and should consult their own legal and tax advisors.
On July 7, 2023, Hecla Mining Company (“Hecla”) indirectly acquired all of the issued and outstanding shares of ATAC Resources Ltd. for consideration of 0.0166 Hecla common shares and 0.1 common shares of Cascadia for each one common share of ATAC (the “Transaction”). In relation to the Transaction, Cascadia was transferred assets including all of the rights and interests related to the Catch, PIL, Rosy and Idaho Creek projects (the “Cascadia Assets”), subject to a right of first refusal to Hecla to acquire any or all of the Cascadia Assets in consideration for shares of Cascadia and warrants for shares in Cascadia. Following such transfer, the shares of Cascadia received by ATAC were distributed to the holders of ATAC shares by way of a return of capital in accordance with Section 84 of the Income Tax Act (Canada).
In association with the declaration of the return of capital by ATAC, as approved by way of shareholders resolution of ATAC, the return of capital was equivalent to the value of the Cascadia shares distributed to the then current ATAC shareholders. As disclosed in the Condensed Consolidated Interim Financial Statements (“Financial Statements”) of the Company for the Nine months ended September 30, 2023 and 2022, dated November 29, 2023, Cascadia considers the aggregate value of the shares distributed by way of the return of capital to be $4,825,393, or $0.22 per share and has recorded the same as reserves in the statement of shareholders’ equity. The Financial Statements have not been reviewed by the Company’s auditor.
Generally, for any former holder of ATAC shares who participated in the Transaction and received shares of Cascadia pursuant to the return of capital, the adjusted cost base (“ACB”) of the Cascadia shares should be equal to the fair market value of such Cascadia shares at the time of declaration of the return of capital, divided by the number of Cascadia shares received by a former holder of ATAC shares as a result of the return of capital (i.e., each share maintains the same adjusted cost base), and the ACB of the ATAC shares held by such former holders would be reduced by an equivalent amount. Pursuant to the return of capital made pursuant to the Transaction, the number of shares acquired by ATAC was 22,150,978, and the fair market value per share is considered by Cascadia to be $0.22 per share distributed. For its purposes, Cascadia considers that the ACB per Cascadia share received as a result of the return of capital pursuant to the Transaction should be $0.22 per share as of the time of the return of capital. Such ACB amount is an estimation only, and we would recommend that you contact your tax advisor in respect of your particular circumstances. The ACB of any Cascadia shares acquired as a result of the return of capital forming part of the Transaction will be required to be averaged with the cost of any shares of Cascadia subsequently acquired by a particular shareholder and owned as capital property by such shareholder at a particular time.
This summary is of a general nature only and is not intended to be, nor should it be construed to be, legal or tax advice to any particular beneficial owner of Cascadia shares. This summary is not exhaustive of all Canadian federal income tax considerations. Accordingly, Cascadia shareholders are urged to consult their own legal and tax advisors with respect to the tax consequences to them of having acquired Cascadia shares pursuant to the Transaction, having regard to their particular circumstances.
Canadian shareholders who received Cascadia shares during Transaction should generally perform the following steps for their 2023 tax reporting:
- Determine the ACB of their ATAC shareholdings as of the date of the Transaction.
- Reduce their ATAC ACB by the return of capital amount incurred by the distribution of Cascadia shares to calculate an Adjusted ACB.
- Recognize a Capital Gain or Loss as of the date of the Transaction based on the difference between their Adjusted ACB and the fair market value of Hecla shares received. For more information on this calculation, please see Hecla’s Form 8937 posted on their Investor Website.
For further information, please see the Tax Considerations section of ATAC’s Management Information Circular, available on SEDAR+ at this link.