Transaction Report: Mining in Quebec

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This article was originally published in the 2013 summer edition of Canadian Mining magazine. It posted here with the permission of the editor.

Quebec is home to a vibrant mining industry, employing about 50,000 workers.¹ With a range of metals, including iron ore, zinc, copper, nickel, silver and gold, the province is driving demand from international markets, such as Asia. Investors should also be aware of Quebec’s new mining tax regime that could affect the future development of mining projects in the region.

The new mining tax regime includes two major initiatives―a new minimum mining tax and a progressive mining tax on profit replacing the existing royalty, which hinges on five core principles, as per the Government of Quebec:

"The new mining tax regime will charge all mine operators a minimum mining tax that could range between one and four per cent, depending on the estimate output value of the mine shaft head. The second part of the new mining tax regime involves a progressive mining tax on profit."

  • Quebecers must benefit more extensively from mining operations;
  • More jobs in the processing sector;
  • More responsible exploitation of mineral resources; and
  • A more transparent regime.

The new mining tax regime will charge all mine operators a minimum mining tax that could range between one and four per cent, depending on the estimate output value of the mine shaft head. The second part of the new mining tax regime involves a progressive mining tax on profit. The royalties on mining profits will be set at a minimum rate of 16 per cent and will increase depending on the mine’s profit margins. Royalties could range between 16 and 28 per cent, with a maximum effective rate at 22.9 per cent. By comparison, the current maximum mining royalty rate is 16 per cent. These proposed changes are to take effect in 2014.

According to the Government of Quebec, the modifications should result in annual revenues to the province from $50 million to $200 million, depending on commodity prices and mines’ profit margins. This may have mining executives thinking twice when planning to invest or develop projects in Quebec. With the new mining tax regime, Quebec is now the costliest jurisdiction in Canada―reducing the province’s competitiveness. Prior to the recent changes, Quebec was recognized for the stability and predictability of its mining policies, particularly its provincial mining act and taxation regime.

The royalty and tax amendments come at a time where the global mining industry is facing rising costs, difficulty in accessing financing, writedowns and a slump in commodity prices. With the combination of global mining woes and Quebec’s royalty changes, the province is faced with a highly competitive market―making it difficult to attract foreign investors.

Uranium projects on pause

In late March 2013, Quebec became the third province, after Nova Scotia and British Columbia, to impose uranium moratorium. No permits for exploration or mining will be issued until an independent study on the environmental impact and social acceptance of extracting uranium has been completed.

The government announcement came amid ongoing legal proceedings aimed at forcing it to make a decision on Strateco Resources Inc.’s Matoush uranium project in northern Quebec. Unlike its provincial counterparts in Nova Scotia and British Co-lumbia, the uranium moratorium in Quebec looks to be temporary at the moment, as it is conditional to the province’s office of public hearings on the environment’s approval in every specific case. Regardless, the move is sure to negatively impact future plans for uranium projects in the province.

Outside investors looking in

According to a recent PwC China report, Resetting the Compass: Navigating success in deal-making for mature market sellers and high growth market buyers, Chinese enterprises have been playing an important role in the cross-border M&A arena, with deal values increasing from US$10.3 billion in 2008 to a record high of $65.2 billion in 2012―more than five times growth over the past five years.

Chinese companies account for some notable investments in Quebec, as part of the province’s former Plan Nord initiative, newly called “Le Nord pour Tous.” In 2011, Jilin Jien Nickel Industry Co. invested an additional $400 million in its project to ex-tract nickel in Nunavik, Quebec―bringing the total investment of Chinese mining to $800 million in the northern tip of Quebec. The company also acquired nickel mining company, Canadian Royalties Inc., in 2010 near the Inuit community of Kangiqsujuaq. More recently, a consortium that includes South Korea’s largest steelmaker, POSCO, agreed to buy a stake in Montreal’s Arce-lorMittal Mines Canada Inc. earlier this year.

For $1.1 billion, the consortium is taking a 15 per cent stake in ArcelorMittal Mines Canada. This is the second time in several years that POSCO has bought into a Canadian mining firm. As one of Canada’s leading suppliers of iron ore, ArcelorMittal Mines Canada would increase POSCO’s access to this key steel-making ingredient. Looking ahead, it is essential for Quebec to continue to attract foreign investors but the impact of the new mining tax regime and moratoriums, such as the ones noted earlier, need to be considered. With these new implications, project planning and implementation must be balanced with the demand for raw materials from emerging countries, like the BRIC nations, while satisfying the province’s push for more transparency, stability and meeting social, environmental and revenue expectations.

1. Government of Quebec website,

John Nyholt is a former partner in PwC Canada’s Transaction Services Group and the Mining Deals former Leader. Nochane Rousseau is a partner in the Montreal office and the PwC Canada Mining Leader for Quebec.

Perspective North: PwC’s vision for the sustainable and integrated development of Northern Quebec.