As this edition of E&MJ was going to press, Québec decided to shelve a new mining tax proposed by the Parti Québécois (PQ) after being re-acquainted with the important role miners play in the region. While the story is still unfolding, many in the mining business are wondering if the damage can be undone.
On October 30, the Québec National Assembly voted down (57:51) draft legislation proposed by the PQ that would have replaced the province’s Mining Act. The PQ, which advocates secession of Québec from Canada, won a minority mandate in the 2012 general election. Since June 2007, the party has been headed by Pauline Marois, who is premier of Québec. As part of its platform in 2012, the PQ said it would increase taxes on mining and in May they made good on that promise. The plan was to double revenues from resources and increase royalties by 15%.
Unhappy with the turn of events, the PQ expressed frustration. “What a great way to help the Québec economy—blocking a bill that needed to be adopted,” Premier Marois told the legislature.
The move and the activity leading up to it had a negative impact on Québec’s image in the mining community. Coincidentally, E&MJ carries a report on Mining in Québec this month. Much of it was written prior to the decision. The report details how mining investments in Québec decreased to $4.8 billion in 2012 and are set to decrease further in 2013, maybe as low as $4 billion. For the first time last year, Québec fell from Fraser Institute’s top 10 mining destinations. Providing more than 17,000 jobs, mining remains a chief economic contributor to the province. Québec has 23 operating mines with an annual output valued at $8.2 billion. There are also more than 200 companies actively exploring for minerals in the region. The Québec Mining Association believes its mining industry pays out more than $1 billion a year in taxes.
The situation in Québec grew more dire when Alcoa announced that it might have to reduce capacity at three aluminum smelters in the province starting in November 2014. Objecting to a dramatic increase in energy prices, the company notified Hydro-Quebec, which is owned by the Canadian province, that it will reduce power consumption in November and December next year. Smelting aluminum is one of the more power-intensive industries and a reduction in power is a reduction in output and jobs. Alcoa has already cut output this year in Québec, as well as the U.S. and Brazil, as it tries to reduce costs. The company discussed curtailing capacity in its third quarter earnings statement, but did not identify which plants it would target specifically.
Alcoa’s operations in Québec include the Baie-Comeau, Becancour and Deschambault smelters, which have a combined production capacity of more than 1 million tons—more than 20% of the company’s capacity. More importantly, the smelters employ 3,300 workers in the center of Québec, which is where the PQ gets most of the votes.
Seeing Québec’s reputation, which was built on trust, tarnished is troubling. The effort to grow tax revenue by gouging mining companies has backfired with lost investment and jobs. The golden Canadian geese are flying south and Premier Marois will have to find a way to convince them to return.
