The Quebec government recently took three major steps towards this goal by: tabling a proposal in May 2013 to change the mining royalty regime; introducing Bill 43 on May 29, 2013, to replace the current Mining Act, which dates back to 1987; and passing amendments on July 23, 2013, to the Regulation to amend the Regulation respecting mineral substances other than petroleum, natural gas and brine in order to set new rules concerning the financial guarantees required for the restoration of mining sites.
In May, the government tabled its proposal to change the mining royalty regime to increase the return on mining royalties for Quebec. It decided to require all mining operators to pay a minimum mining royalty, called the minimum mining tax, and a progressive tax on mining profits. The minimum mining tax will be 1% of the total output at the shaft head below or equal to $80 million and 4% of each dollar in excess of the $80 million threshold. The minimum mining tax paid can be carried forward and applied against the tax on future mining profits.
In 2011, half of the 20 mining companies operating mining fields in Quebec did not attain the profitability threshold at which mining tax is payable under the current regime. The new regime will subject them to a new tax burden.
The mining tax on profits will be 16% for mining companies with a profit margin between 0% and 35%, 22% for mining companies with a profit margin between 35% and 50%, and 28% for mining companies with a profit margin between 50% and 100%.
According to government figures, the new mining royalty regime should allow the government to collect $376 million in revenues in 2015 — $56 million more than the current mining tax regime would generate. When corporate income tax and the mining tax on profits are taken together, the new Quebec regime represents a combined taxation rate between 38.6% and 42.4% depending on a company’s profit margin, compared to a rate of 32.5% in Ontario and 45.8% in Australia.
The new royalties are expected to come into effect on Jan. 1, 2014.
A new Mining Act
Bill 43, tabled on May 29, 2013, is the third attempt to reform Quebec’s mining legislation since 2010.
Bill 43 contains most of the amendments proposed in Bill 79 and Bill 14 but also adds some new concepts, resulting in: 1) stronger recognition of sustainable development as the “perspective” for mining development in Quebec; 2) right of the minister to refuse or revoke a mining lease for surface mineral substances for “public interest” reasons; 3) requirement for mining operators to conduct a feasibility study for the processing of ore mined in Quebec; 4) a more robust penal sanctions regime based, in part, on the Environment Quality Act; 5) requirement to obtain a certificate of authorization under the Environment Quality Act before a mining lease is granted; (6) repeal of the power of expropriation for purposes of mining exploration; (7) increased protection of a family residence where it is acquired for mining purposes; 8) codification of the minister’s duty to consult native communities, “having regard for the circumstances,” for mining projects; 9) requirement to subject all mining projects to the environmental impact assessment and review procedure and provision of a financial guarantee covering 100% of the anticipated cost of rehabilitation; and 10) possibility for the minister to require the completion of a study on the maximization of economic spin-offs for Quebec.
The parliamentary commission of the National Assembly began hearings on Bill 43 at the end of August 2013. If the political parties in the National Assembly reach the consensus needed for it to pass, the Bill should become law in the fall of 2014 or no later than the spring of 2014.
A new regulation
Lastly, on July 23, 2013, the government enacted OC 838-2013, which amends the Regulation respecting mineral substances other than petroleum, natural gas and brine in order to set stricter requirements for mining site restoration and rehabilitation. With these regulatory amendments, several of the amendments set out in sections 176 to 196 of Bill 43 can be put into effect immediately.
Accordingly, the following changes will apply as of the effective date of this regulatory amendment, i.e. Aug. 22, 2013: 1) the guarantee that a mining operator is required to submit will have to cover 100% of the anticipated costs of the rehabilitation plan, as compared to 70%, which is the requirement that applied until Aug. 22, 2013; 2) the guarantee must be submitted in three instalments during the first three years; 3) the first instalment of the guarantee must be for 50% of the total amount of the guarantee and the second and third instalments, for 25% each; 4) operators whose rehabilitation plans were approved before Aug. 22, 2013, are required to comply with the new rules regarding the financial guarantee, providing the first instalment within one year and the other instalments within three years; (5) the new financial guarantee requirements will apply to mining exploration operations as of revision of the already-approved restoration plan.
The three components of mining law reform in Quebec are intended to: increase environmental responsibility of mining stakeholders; ensure that mining development is in keeping with the principles of sustainable development; increase government revenues from the development of mineral resources in Quebec; and optimize the economic spin-offs from mining development for both local communities and Quebec as a whole.
All these objectives, while laudable, will need to be adjusted in keeping with market realities. The challenge for the government is to make sure that Quebec remains attractive to individuals and businesses interested in mining development.
It is important to remember that the marketplace for mining development is now global and capital is extremely mobile. Quebec is in ongoing competition with other provinces, states and countries that have mineral resources.
Quebec, a democratic state with a dependable and competent legal system, offers undeniable advantages in terms of qualified labour, communication channels, political stability and legal certainty. In this respect, Quebec is attractive.
However, it is not the only state that offers these benefits. The tax and regulatory regimes factor significantly in the decisions made by investors. It is important to remember that many mining exploration companies are under-capitalized and have access to limited financial resources.
For Quebec to remain competitive, the government must therefore strike the right balance between its political objectives and the economic realities of the Quebec, Canadian and global mining markets.
(Click here for a complementary commentary by Madeleine Donahue and Jean Piette on Ontario’s new regulatory regime.)
— Madeleine Donahue is a senior partner at Norton Rose Canada’s Toronto office, and is certified as an expert in environmental law by the Law Society of Upper Canada. She practises primarily in the environmental, occupational health and safety, mining and privacy law areas.
Jean Piette is a senior partner in Norton Rose Canada’s Montreal office, and is experienced in both environmental law and the development of environmental policy. He is chair of Norton Rose Canada’s environmental team and was the first lawyer in Quebec to develop a practice devoted entirely to environmental law in 1972.
As a member of Norton Rose Group, Norton Rose Canada LLP is a global international legal practice with close to 700 lawyers based in Calgary, Montreal, Ottawa, Toronto, Quebec, Caracas and Bogota. See nortonrose.com for details.
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