Agnico-Eagle – Federal Court of Appeal finds that conversion of a U.S.-dollar convertible debenture resulted in no capital gain based on the appreciation in the underlying shares’ value

Agnico-Eagle issued US$143M of convertible debentures (the equivalent of Cdn.$230M) and they were mostly converted into shares at a time their principal was the equivalent of Cdn.$170M, so that in CRA’s view Agnico-Eagle made a s. 39(2) gain of Cdn.$60M. According to a verbal formula provided by Ryer JA at the end of his judgement, the s. 39(2) gain was to be computed by comparing the fair market value of the shares when issued (using their current market price) of around Cdn.$280M, with the Cdn.$230M issuance amount, so that on this math Agnico-Eagle would have sustained a s. 39(2) loss of around Cdn.$50M. However, earlier in the judgment he stated that his decision was limited to whether there was any s. 39(2) gain, so that there was no direct finding that Agnico-Eagle sustained a s. 39(2) loss - but only that the appreciation of its shares had the effect of eliminating what otherwise would have been a s. 39(2) gain.

Neal Armstrong. Summary of The Queen v. Agnico-Eagle Mines Ltd., 2016 FCA 130 under s. 39(2).