Although Québec’s miners are struggling alongside an industry facing soft market conditions, their provincial government is still making good on election-year promises by increasing its royalties and taxes in 2014 to boost revenues to $200 million annually.
However, the increases by Parti Québécois are less than pledged during its 2012 campaign—a tacit recognition of the mining sector’s challenges. In all, the new regime, beginning in 2014’s Q1, will mandate fixed production taxes between 1%-4% and profit taxes between 16%-28% over the present rates of 16%; the proposal also seeks to stimulate domestic processing.
This was of no solace to many. “We always said that if Québec is to stay competitive as a mining jurisdiction, we needed to keep the tax and royalty regime that was already in place,” said Quebec Mining Association President Josée Méthot. “We are the most taxed province in Canada at the mining level and we’re a small market.” Both of the main opposition parties voiced similar concerns.
The proposals, according to Québécois officials, partially account for the fact that nearly a dozen companies paid no 2011 provincial taxes. Moreover, the new rules will require each mining operation to pay increased fees on either royalty production, at a 1% tax on the first $80-million on output value, with subsequent 4%, or a graduated tax based on profit margins, beginning at 16% and a ceiling of 28%.
Some miners, like Bryan Coates, CFO of Osisko Gold Corp., however, were more resigned to the changes. “It’s obviously never a great day when governments increase taxes,” he told Kitco News. “But it is something we can live with.”
Coates was not alone. Dale Coffin, a spokesman for Agnico-Eagle Mines, which operates three gold mines, said the impact seems minor, though company officials are still reviewing the proposed changes. In any case, “hopefully this will signal an end to this period of uncertainty,” he told Reuters.
On the other hand, Stornoway Diamond Corp. officials, soon to emerge with the province’s top diamond mine, greeted the news warmly. “It recognizes the important place of mining in the Québec economy,” said Stornoway CEO Matt Manson. “The new system being proposed is a reasonable balance between taxation revenue and the type of returns expected by investors and lenders in an increasingly competitive world for mining capital allocation.”
Finance Minister Nicolas Marceau has estimated that, depending on operational and profits margins, the new regime will bolster provincial revenues by between $73 million and $200 million annually by 2015. Overall, he added, Québec could witness a total revenue increase up to $1.8 billion. This amount, nonetheless, represents a shortfall of the five-year $388-million increase initially proposed.
Marceau said a 25% slump in 2011’s global metal prices precipitated the legislative revision while mirroring an official desire to remain flexible. “I never accepted the logic of a fixed amount—the context has changed,” he said. Indeed, given current market demands for Quebec’s metals, he added, efforts to secure the nearly $400 million target would be “irresponsible.”
The change, noted mining association president Méthot, however, comes just three years since the last increase. “This is not the time to change the rules,” he noted, citing outcomes including project postponement and exploration disincentives.
This correlates with a period in which Québec’s mining reputation has taken a beating. In a recent survey by the Fraser Institute, a nonpartisan Canadian think tank, ranking best mining jurisdictions in the world, the province has fallen out of the top 10 category, after being No. 1 from 2007 to 2010.