Québec plans to pluck and invest in the golden goose of mining

While soaring mining taxation will pluck a few more feathers off the mining golden goose, the Québec government plans to shoulder some risk in exchange for higher fiscal rewards.

Author: Dorothy Kosich
Posted: Thursday , 22 Mar 2012

RENO (MINEWEB) -

As Minister of Finance Raymond Bachand presented his budget Tuesday, he observed, "Like all peoples who possess such [abundant natural] resources, Québecers want to maximum their benefits," partially by collecting more than Cdn$4 billion in mining royalties over the next decade.

A new mining regime will help accomplish these goals through gross royalties collected on mining, forestry and water-power than will reach $1.2 billion in 2011-2012.

"During the 10 years that preceded the reform of the royalties regime, mining companies paid a total of $289 million in royalties to Québec. Over the next 10 years they will pay more than $4 billion. That is 14 times more," Banchard observed.

To encourage more ore processing in the province, the provincial government will apply an investment tax credit to assets used to smelt or refine metals, and for hydrometallurgy, the minister announced.

The minister also revealed a four-pronged equity participation strategy that would allow the government to take an equity interest in mining projects, as well as the oil and gas industry.

The first component allocates $500 million in the provincial budget 2011-2012 for equity participation in projects in the Plan Nord region, covering all of Québec's territory north of the 49th parallel and north of the St. Lawrence River and the Gulf of St. Lawrence. The Plan Nord sustainable development proposal covers nearly 1.2 million square kilometers and accounts for 72% of Québec's geographic area. It produces all of Québec's nickel, cobalt, PLG, zinc, iron ore and ilmenite and accounts for a significant portion of gold production, Lithium, vanadium and rare earth metals are also present.

Twenty-seven percent of the population in the region is Inuit and First Nations members.

C$80 billion in government and company investments are planned by Plan Nord by 2036 to develop mining and energy resources.

"The envelope available for investment in mining and hydrocarbon development projects is being raised from $500 million to $1 billion over five years," the minister said. "However, the additional $500 million may be invested in projects throughout Québec.

"The excitement created by the Plan Nord, coupled with the worldwide demand for Québec's natural resources, is leading to a growing number of potential projects," Bachard observed. "Mining companies are seizing every opportunity available to them. The government must have the means necessary to ensure that all Québecers benefit from the development of Québec's resources."

The government hopes to extend the power transmission grid to Nunivak to supply mining operations in the territory.

The second component allows the government to negotiate early equity options in all mining projects for which government support for infrastructure and the establishment of electricity rates is requested.

"We're creating Ressources Québec, a new subsidiary of Investissement Québec, specialized in mining and hydro carbons," said Bachard. In addition to investing on its own behalf, Ressources Québec will advise the government on the management of another new fund called Capital Mines Hydrocarbures, which will be dedicated to government investments in Québec's subsurface resources.

"The mining and hydrocarbon sectors pose special challenges, particularly due to the volatility of resource prices and the technical and geological aspects of nature resources projects," said Bachand. Ressources Québec will be mandated to consolidate and enhance the government's equity interests in projects by mining and hydrocarbon companies.

Ressources Québec will consolidate all of Investissement Québec's current equity interests in mines and hydrocarbons.

The third component of Bachard's strategy is to reduce the tax credit rates available to companies conducting exploration in the province by more than one quarter as of Jan. 1, 2014. "Furthermore, companies that carry out exploration in Québec's subsurface may, at their discretion, take advantage of the enhanced exploration tax credits in exchange for an option on a government equity interest in future development."

The fourth and final component calls for the government and Ressources Québec to a lot up to $100 million in the next five years for investment in the exploration and development of promising mining sites, in partnership with private companies.

Bachand said Caisse de Depot et Placement du Québec, the provincially owned pension-fund manager is working with Montreal‘s Canadian National Railway on a project to build a 800-kilometer long rail line linking the Port of Sept-Iles and the Labrador Trough region. The C$5 billion link could open as soon as 2017, quadrupling iron ore shipments and adding about C$1.3 billion in revenue, according to Desjardins Securities. Canadian National would contribute about two-third of the project costs.

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