Quebec's Ministre des Finances (the Finance Minister), Mr. Carlos J Leitão, on behalf of the Government of Quebec (the "Government") tabled, on March 26, 2015, the budget for the province's financial year starting April 1, 2015 and ending on March 31, 2016 (the "Budget"). This bulletin briefly highlights some of the measures specifically of interest to the mining industry and those who invest in the industry, designed to notably contribute to the development of Quebec's Plan Nord, improve support to exploration, ensure the transparent development of Quebec's natural resources and ensure the availability of energy as a tool for economic development.
1. Re-launching Plan Nord
As mentioned in the Budget, the Government has established a new corporation, the Société du Plan Nord (the "Corporation"), whose operations began on April 1, 2015. Its board of directors, of which a majority of members must be independent and must come from the Plan Nord territory (north of the 49th parallel), held its first meeting on March 20, 2015. Mrs. Élizabeth Blais, from Sept-Îles, has been appointed as the first President of the Corporation's board of Directors and Mr. Robert Sauvé, associate Secretary General of the Ministère du Conseil exécutif and responsible for the Secrétariat au Plan Nord, is its first Chief Executive Officer.
According to the Budget, financing of the activities of the Corporation will come from the Fonds du Plan Nord (the "Plan Nord Fund") and this fund should benefit from an envelope of $425 million over the next five years (to be reviewed annually to reflect changes in the projects undertaken in the Plan Nord territory and resulting tax revenues). This would be funded mainly by an annual endowment drawn from tax spinoffs resulting from investment projects in the Plan Nord territory expected to be approximately $77.4 million for 2015-2016 ($5.7 million less than previously projected), and $361.1 million from 2015-2016 to 2019-2020. An annual contribution, over the same period, of $10 million (total of $50 million) from Hydro-Québec is added to the endowment (according to the budget, the balance will be made up of revenues from other sources).
Investments of $16.3 billion were taken into consideration to establish the 2015-2016 endowment for the Plan Nord Fund, including $10.5 billion from mining projects, $4.9 billion from Hydro-Québec projects and the balance from infrastructure projects. This represents a reduction of $2 billion from the previous estimate, as changes to metal prices have resulted in $1.7 billion less in projected mining investments.
In a longer-term perspective, the Budget projects $50 billion total public and private investments by 2035.
The Government adopted a 25-year horizon to monitor the financial balance sheet of the Plan Nord Fund, the objective being that it be balanced over this horizon (expenditures - projected revenues). Overall, over the 25-year period, tax spinoffs devoted to the Plan Nord Fund should be of $2.2 billion, which is $171 million more than the amount previously projected. This increase mainly results from the projected increased labour needs in the mining industry and should more than offset the reduction in short-term spinoffs associated with reduced investments.
An action plan for financial years 2015-2016 to 2019-2020 will be unveiled shortly to outline the priority initiatives to be implemented over the next five years and the allocation of the five-year envelope made available to the Corporation from the Plan Nord Fund assigned, starting April 1, 2015, to the financing of the activities of the Corporation and selected priority initiatives.
This plan will follow the Government's soon-to-be-released details (apparently imminent) of its vision for the development of Plan Nord and, more specifically, the guidelines that will help define the Corporation's objectives and action priorities.
Initiatives that have been financed by the Plan Nord Fund to date include the execution of the first phase of a study on a new rail link to improve access to the Labrador trough, the extension of Route 167 to the Otish Mountains and the reconstruction of the James Bay Route.
The Budget thus confirms that the development of the Plan Nord constitutes an important component of Québec's Economic Plan and calls for the continuation of efforts already underway to promote the development of northern Quebec and its resources.
With regard to knowledge acquisition on the Plan Nord territory, the Budget announced the addition of $3 million per year over three years to the annual amount of $8 million currently allocated for geoscientific studies to better characterize bedrock of the Plan Nord territory. The additional amounts will be financed from the mining heritage component of the Natural Resources Fund.
The Budget indicated that the Government maintains its goals of establishing protected areas on 20% of the Plan Nord territory by 2020 and of ensuring that 50% of the Plan Nord territory is exempt from industrial activity by 2035. It remains to be seen which parts of the territory will be subject to such protections since the Government, over the last months, has been circumspect on the subject.
2. Initiatives to Enhance Support for Mining Activities
Expansion of the Definition of Exploration Expenses
The definition of "exploration expenses", for the purposes of the tax regime, will be expanded to include certain expenses associated with environmental studies and community consultations, including with aboriginal communities, that are necessary to obtain an exploration permit. Thus, exploration expenses that are eligible for the exploration allowance under the mining tax regime, the flowthrough share regime and the resource tax credit will be impacted by this measure. In so doing, the Government wants to make it easier for companies to finance the realization of such studies and consultations, which should ensure a better understanding of the environmental issues as well as greater social acceptability of mining projects.
According to the Budget, this measure will represent a tax relief of approximately $300,000 per year for the mining companies.
One-Year Postponement of the Increase in Pricing for Certain Mining Rights
Mining claim registration and renewal fees will be increased by 8% on January 1, 2016 and by another 8% on January 1, 2017. This measure replaces the 16% increase that was scheduled for 2015. Current claim registration and renewal fees vary from $28.25 (claim area of less than 25 hectares, north of 52 degrees latitude) to $83.75 (claim area of more than 100 hectares, south of 52 degrees latitude).
According to the Budget, rent for mining leases will not be increased, given that the mining companies already contribute by the mining tax.
In place of the previously planned 12% increase in 2015 of rent for a lease to mine surface mineral substances and peat, such rent will be increased by 6% on January 1, 2016 and by another 6% on January 1, 2017.
Two-year Reduction of the Minimum Cost of Work to be Carried Out on a Mining Claim
The minimum cost of work that must be performed by a claimholder in a two-year term of a claim will be reduced by 35% for a period of two years, starting in 2015. Such minimum work requirement currently varies between $48 and $3,600 per claim. This measure corresponds to an estimated total savings for companies involved in exploration of $8M over two years.
Renewal of the Société d'investissement et de diversification de l'exploration minière ("SIDEX") Mandate
SIDEX is mandated with investing in projects of junior mining companies engaged in mining exploration. Since its creation in 2001, such investments have amounted to more than $85 million from pooled funds from the Government and Fonds de solidarité FTQ (a Quebec development capital fund). The Budget announced the renewal of SIDEX's mandate until 2025 (from the end of its current mandate in March 2017).
In particular, its Action-Terrain program, introduced in 2014 with the objective of making a financing of up to $100,000 quickly available to junior companies for exploration projects planned for 2014, is extended for 2015, with an envelope of $3 million and the potential to aid 30 junior mining companies. The terms of this program will be announced by SIDEX in the upcoming weeks.
Increased Support for Research on the Reuse of Mine Tailings and for Responsible Development in the Mining Industry
A research niche on the reuse of mine tailings will be added to the Programme de recherche en partenariat sur le développement durable du secteur minier (Research in Partnership on Sustainable Development for the Mining Sector Program) of the Government's Fonds de recherche du Québec – Nature et technologies (Nature and Technology Research Fund). A maximum of $500,000 per year over three years will be allocated to this niche and will be financed from the mining heritage component of the Natural Resources Fund.
Amongst the other measures:
- The ministère de l'Énergie et des Ressources naturelles (Ministry of Energy and Natural Resources, the "MENR") will collaborate with the ministère du Développement durable, de l'Environnement et de la Lutte aux changements climatiques (Ministry of Sustainable Development, Environment and the Fight against Climate Changes) to analyze the potential of the metal sectors on a Québec-wide scale and establish an environmental and socioeconomic portrait of the mining industry using the "life cycle analysis approach" of the metals. Allowing the implementation of measures to improve the performance of metal recycling and guiding mining companies in their renewable energy choices are amongst the objectives of this measure;
- The MENR will work with Écotech Québec, Québec's clean technology cluster and MISA, a network of mining innovation experts, to find innovative solutions for the technological problems facing mining companies.
A sum of $500,000 per year over the next three years will be devoted to these measures, financed from the mining heritage component of the Natural Resources Fund.
3. Transparency in the Extractive Industry
In its 2014-2015 budget, the Government had announced it would be putting new standards in place to require companies in the extractive sector to disclose their payments to local and foreign governments.
Given the recently sanctioned Canada Extractive Sector Transparency Measures Act (implementation date of the provisions not yet set), the Government announced in the Budget its intent to implement equivalent provisions in the Québec legislation.
More specifically, according to the Budget:
- The bill regarding transparency in the extractive sector will be introduced by the ministre délégué aux Mines (Minister for Mines) in the coming months. The bill is referred to in the Budget as the "extractive sector transparency measures act" (the "Act");
- The Act will contain provisions requiring companies from this sector to publish annual reports listing payments of $100,000 or more, made to all levels of government in Canada or in other countries, including to Aboriginal bodies;
- The Act will target companies focussed on commercial operations, i.e. companies that engage in activities such as exploration or extraction or that hold a permit allowing them to engage in such activities. Reporting obligations under the Act will apply to companies that are listed on a stock exchange in Canada for which Québec's Autorité des marchés financiers is the primary securities authority or that have a place of business in Québec and meet at least two of the following conditions: (i) have at least $20 million in assets, (ii) generate at least $40 million in revenue, and (iii) employ, on average, at least 250 workers;
- Payments to be reported will be those, in cash or in kind, made to a payee (as it will be defined in the Act), including: taxes (other than consumption taxes and personal income taxes), royalties, fees, production entitlements and infrastructure improvement payments;
- The Act will include regulatory powers of the Government so that certain provisions may be added, including particularly, additional payment categories; and
- The disclosure obligations of the Mining Act (Quebec) will be combined with those under the Act concerning payments, such that companies from the extractive sector will have to disclose their information in an integrated way pursuant to the Act. The disclosure requirements under the Mining Act notably include the nature and quantity of substances extracted and their value. The Budget does not say whether the exceptions to disclosure provided for in the Mining Act will continue to apply once all the disclosure obligations mentioned above will have been integrated under the Act.
The administration of the Act will be entrusted to the Autorité des marchés financiers.
4. Measures relating to Energy
Although not specifically directed towards the mining industry, business enterprises in this sector may benefit from some of the measures announced with respect to less polluting energy sources, including natural gas and electricity.
The Budget introduced an accelerated capital cost allowance for assets used in the natural gas liquefaction process. For assets acquired after February 19, 2015 and before January 1, 2025, a business enterprise may benefit from an increase in the amortization rate (from 8% to 30% for materials and from 6% to 10% for buildings). Thus, after four years of using eligible materials, a business enterprise will be allowed to benefit from deductions equal to 71% of the acquisition costs, up from 25% under the usual amortization rule.
According to the Budget, this measure may allow companies to free-up cash flow quicker, thus easing the financing of their investments. The financial impact for the Government is estimated in the Bodget to be $1.1 million in 2018-2019 and $3.8 million in 2019-2020.
The Budget also presented an electricity economic development rate applicable to new projects that support economic development and have significant electricity needs. This rate will represent a 20% reduction when compared to the applicable regular rate. The reduced rate will apply to new loads, with maximum required power of at least one megawatt and electricity costs representing at least 10% of total operating costs. In the case of a company that already has an account with Hydro-Quebec, the additional load will, in addition, have to represent at least 20% of the existing load.
Each project will be evaluated by Hydro-Québec in collaboration with government stakeholders and will particularly take into account the economic impact generated in Québec.
The rate reduction will have a maximum duration of ten years, including a three-year transition period towards the applicable regular rate. To take into account the risks related to possible changes in the energy and economic environment, the Government will have the power to terminate the reductions at any time after approval by Quebec's Régie de l'énergie (Quebec Energy Board).
The Régie de l'énergie in a decision made public on March 9, 2015 regarding Hydro-Québec's 2015-2016 rate application has already approved the pricing regulations related to this new rate.
On another note, the Budget announced that the Government intends to financially support the completion of projects to extend the natural gas distribution network in Quebec to regions not presently served. According to the Government, better access to natural gas will allow business enterprises to invest in improving their efficiency while reducing their carbon footprint.
For this purpose, a $38 million envelope is set aside for projects related to the extension of the natural gas distribution network. This amount will be divided among different projects, for which the government will finance up to 50% of the amount not authorized by the Régie de l'énergie, all in taking into consideration the contributions of other stakeholders.
This financing will come from the amounts allotted to the MENR from the Green Fund. Several projects targeting different regions of Québec are under study. To be eligible, the projects must include an investment from the distributor and the government of Canada and a community contribution.
Although the measures summarized above may not represent substantial savings for mining companies, some of these measures do send a positive message of support to the industry in these times of austerity in Quebec.
Interestingly, the Government deemed it important to refer in the Budget to the latest Fraser Institute Survey of Mining Companies, which ranked Quebec sixth for mining investments, up from the 21st spot in 2014.
The Quebec mining industry associations have underlined specifically some of these measures as being encouraging for the industry and investors. That being said, notably taking into account some of the recent statements of the Government, it remains to be seen how it will consider certain uncertainties (the establishment of protected areas in the Plan Nord territory alluded to above is but one example) that still hang over the mining industry in Ouebec's current legislative context.