Plan Nord - Québec Mining: The First Stakes Are Placed!

April 5, 2011

In his 2011 budget speech, Québec's Minister of Finance, Mr. Raymond Bachand, started staking out the parameters of Plan Nord by announcing a series of measures for the plan's implementation. The full version of Plan Nord is expected to be announced in the next few weeks by the Deputy Premier and Minister of Natural Resources and Wildlife, Ms. Nathalie Normandeau.

The purpose of this bulletin is to present and comment on the announced budget measures relating to Plan Nord that are of interest to the mining industry. Specifically, the budget proposes:
(i) approximately $2 billion in infrastructure investments over five years;
(ii) $500 million for equity participation by Investissement Québec over that same period; and
(iii) the creation of the Fonds du Plan Nord.

First, we will provide a brief description of Plan Nord and the territory involved. Subsequently, we will analyze the measures that were announced in detail and provide some critical perspective.

Plan Nord

Announced by Premier Jean Charest nearly two years ago, Plan Nord is quietly moving forward; it provides for the development of Québec's territory north of the 49th parallel, namely James Bay, Nunavik and the North Shore over a 25-year time horizon. Plan Nord will be deployed over an immense territory, 72% of the province of Québec, nearly 1.2 million square kilometres – an area twice the size of France. Plan Nord does not include Rouyn, Val d'Or and Chibougamau, though it does include Sept-Îles, Port Cartier and Baie-Comeau.

This is a visionary and ambitious project that will push back Québec's natural frontiers, opening up a territory rich in natural resources to discover and develop.

Even though all of the details have not been announced, Plan Nord has garnered significant interest. In 2009, close to 50% of mineral exploration in Québec was carried out on this territory. It is important to note that during the first three months of 2011 unprecedented announcements covering the Plan Nord Territory were made: the signing of a long-term Collaboration Agreement between Cree communities and Opinaca Mines, which allowed its parent corporation, Goldcorp, to announce an investment of over $1.4 billion to complete the Éléonore project in James Bay; the conclusion of a Framework Agreement between Adriana Resources and the Chinese corporation WISCO in connection with the Lac Otelnuk project in Nunavik; and the Indian corporation Tata Steel's investment in the New Millenium project along the Labrador Trough.

All of these conditions are about to coalesce and allow the mining industry to cross the heretofore impenetrable 49th parallel of Québec.

Whether Plan Nord succeeds in creating riches and structuring Québec's future is dependent upon whether Minister Normandeau will be able to achieve consensus among the communities and other stakeholders through the complex but necessary consultation process based on respect, awareness and openness. It is rumoured that this process is almost complete.

Sustainable development is an essential component of Plan Nord, and approximately 50% of the territory will be excluded from all industrial activity under the terms and conditions that are expected be defined in the official unveiling of Plan Nord. This aspect of the plan is of particular concern to the mining industry.

Budget Measures

Four major budget measures have caught the eye of the mining industry and deserve mention:

• Infrastructure investments under the first Five-Year Plan of Plan Nord;
• Equity participation by Investissement Québec in mining projects over the next five years;
• The mandate to solicit investment entrusted to Investissement Québec; and
• The creation of the Fonds du Plan Nord.

It is expected that details related to these measures will be announced when Plan Nord is unveiled. The cost of accessing Hydro-Québec's network is a factor that remains unknown.

First Five-Year Plan – $1.193 Billion in Infrastructure Investments

The first Five-Year Plan covering the period between 2011 and 2016 provides for $1.193 billion in infrastructure investments.

Of this amount, $480.1 million will be used to complete two projects that were announced in the 2009 budget, namely the extension of Route 167 to Mont Otish, which will facilitate the completion of the Stornoway, Strateco, Abitex, Western Troy and Eastmain Resources projects ($278 million), as well as the reconstruction of Route 389 between Baie-Comeau and Fermont, which will facilitate resource developments in the Fermont, Lac Bloom, Mont Wright and Fire Lake region ($201.5 million over five years in relation the $415.5 million total cost of the project).

Over $621.6 million will be invested in other infrastructure projects; the breakdown of these investments should be announced when Plan Nord is unveiled. However, if Québec's infrastructure plan for 2010-2015 is any indication, there is good reason to believe that a large portion of that amount, perhaps up to $508.3 million, will be earmarked for strategic transportation and telecommunications infrastructure in areas with the highest development potential. As the budget states, "When deciding on government investments, priority will be given to energy and mining projects offering the most development opportunities."

A total of $56.8 million will fund studies on creating a land link, perhaps a road but most likely a railway, connecting Kuujjuaq to Shefferville. In addition to opening up Nunavik (with the immediate effects this would have on local communities), the goal is to create a north-south access route to the Labrador Trough that will facilitate the exploration and development of the territory's mining potential as well as the hydro-electric development of the Caniapiscau River (1,600 MW).

Finally, as further evidence of the government's long-term vision, Québec will allocate $32.8 million over the next five years to conduct feasibility studies for a deep-water port in Whapmagoostui-Kuujjuarapik combined with a land link to Radisson to prepare to open up a Northwest Passage to international maritime traffic.

$500 Million in Equity Participation by Investissement Québec

Based on the model of the Osisko and Strateco investments, Québec's Minister of Finance announced that $500 million would be made available to Investissement Québec to be used for equity participation in structuring projects leading to the development of Plan Nord territory.

The budget promises to be flexible as to the nature of this equity participation, which can take the form of joint ventures, capital stock, convertible debentures and other types of interests. The form of investment will be determined based on the risks involved, the anticipated return and the desired degree of involvement.

Investissement Québec's flexibility will be subject to oversight and government approval of equity interests exceeding 30% of a project's cost, business takeovers or equity interests of more than $50 million.

Mandate to Solicit Investment Entrusted to Investissement Québec

The budget gives Investissement Québec and the Ministère du Développement économique a mandate to promote the investment in projects within Plan Nord territory. An amount of $52 million will be allocated to carry out this mandate under the first Five-Year Plan of Plan Nord.

Creation of the Fonds du Plan Nord

Completing Plan Nord over a 25-year period will require continued government support of the plan's infrastructures and the implementation of funding that is permanent, predictable and reliable.

Borrowing a concept proposed by some stakeholders in the mining sector, this year's budget announces the creation of a specific fund dedicated exclusively to the completion of Plan Nord.

The Fonds du Plan Nord announced in Minister Raymond Bachand's budget will be funded by a portion of the tax revenues from the economic activities carried out in Northern Québec. These tax revenues will result from new mining projects, new Hydro-Québec projects, or public infrastructure projects. Contributions payable by private and public partners to fund infrastructures essentially built for their own use will top off the Fonds du Plan Nord.

The government expects to transfer over $2.1 billion in tax revenues over the next 25 years to the Fonds, with $288 million being earmarked to fund the first Five-Year Plan of Plan Nord.

Specific details of the Fonds du Plan Nord will be provided in the bill authorizing its creation. The budget states, that the Fonds du Plan Nord will be funded annually based on budgetary forecasts approved by the government, and that the expenditures and investments funded by the Fonds du Plan Nord must be submitted to the National Assembly for approval each year.

The Minister of Finance will define the standards for the use of funds that are to be drawn from the Fonds du Plan Nord, ensure rigorous management of the fund, adopt terms and conditions similar to a standard, and will be authorized to demand a more detailed account of how the sums drawn from the fund are being used.

Comments

Québecers are awaiting the announcement of Plan Nord impatiently. This societal project will shape Québec for generations to come; its many challenges are visionary and certainly a worthy test of our spirit and ambition. Plan Nord will be a source of pride as great as the James Bay Project of the 1970s.

The mining sector will undoubtedly be the driving force behind Plan Nord. As such, it is expected that the plan will develop as the opportunities in this industry arise. As a result, it is only natural that the mining sector will be critical to the development of the plan.

Although we are still waiting for Plan Nord to be unveiled, the measures announced by the Minister of Finance in his initial staking out of the plan are headed in the right direction. Essentially, they meet the expectations that the mining industry has often expressed in terms of infrastructure.

That said, unfortunately the budget is silent in regards to the costs of connecting to Hydro-Québec's network. For some projects, the cost of connecting to the Hydro-Québec network will exceed the cost of creating access roads and, in some cases, could even compromise a project's completion. Clearly, Hydro-Québec's tariff model is not adapted for Northern Québec's vast stretches of land and power lines. Since Hydro-Québec has neither the mission nor the mandate to provide electricity at a discount, it is up to the government to find a way to finance the access to power that these mining projects will require.

Lastly, it will be important to obtain details with respect to the $52 million amount announced under the rubric of "Investment Prospecting and the Coordination for the Implementation of Plan Nord". It is hoped that a portion of this amount will be invested by allocating additional resources to government departments, such as the Ministry of Sustainable Development, Environment and Parks, to accelerate the analysis of the environmental impacts of projects scheduled for completion in Plan Nord territory. At the moment, government departments require funding to improve the delivery of services and study projects that have been submitted in a diligent manner.

Stay tuned: we will provide full details in our next Bulletin as well as special conference on Plan Nord in the weeks following its unveiling.
Please do not hesitate to contact us if you have any questions or comments about this bulletin.

Jean Masson, member of Plan Nord's team, member of the Mining Committee and the Plan Nord Committee of the Québec Federation of Chambers of Commerce.

Plan Nord Team

Jean M. Gagné, Mining, Relations with First Nations and Permits
Jean Masson, Governmental Relations, Public Financing and Permits
Charles Kazaz, Environment and Permits