Quebec’s mining rules spook investors

Uncertainty about protected areas and environmental restrictions, combined with increased regulation and tax changes, has damaged Quebec’s mining, says a report by the Fraser Institute.

“If Quebec wants to prevent further decline and recapture its status as a top global mining jurisdiction, its government needs to reconsider its mining policies,” says Kenneth Green, project director and senior director of natural resource studies at the Fraser Institute.

The study identifies four key barriers to investment in Quebec:

Uncertainty around protected areas The primary deterrent for investment is policy change and uncertainty involving protected areas such as wilderness zones, parks and archeological sites. These changes include commitments to protect 12% of Quebec’s northern territory (nearly 1.2 million square kilometres) and intentions to exclude up to half of the territory from industrial use.

Read: Top 10 mining trends for 2014

Uncertainty over environmental regulations The study warns against the politicization of environmental impact assessments and public consultation.

It “deters investment by threatening projects with new restrictions and prohibitions, creating the perception that special interests—rather than sound science—guide policy decisions,” Green says.

Read: CSA to enhance disclosure of oil & gas issuers

Taxation Since 2010, Quebec has introduced two major changes in taxation—increasing mining duty rates to 16% from 12% of annual profits, and basing profits on individual mines rather than across operations held by a single owner. Now, losses incurred at one mine can’t be used to reduce annual profits at another. The study also looks at possibly lowering the corporate tax rate and reconsidering restrictions that limit credit for exploration work.

“With its increases in mining taxes, the Quebec government runs the risk of setting a tax level so high that mines become unprofitable, resulting in mining investors pulling out of Quebec in favour of more competitive jurisdictions,” says Alana Wilson, study author and senior economist with the Fraser Institute’s Centre for Natural Resources.

Read: Workers needed as mining sector ramps up

Regulatory duplication and inconsistencies Regulatory duplication and inconsistency has increased steadily over the past five years despite the recent defeat of Bill 43, which would have created more layers of regulation.

“Regulatory overlap and duplication make it more difficult, costly and time consuming to comply, and increases the risk of missing out on mining opportunities,” Wilson says.

In 2011, mining and mineral manufacturing accounted for $10.2 billion, or 3.4%, of Quebec’s GDP and employed 85,568 workers in the province.

Read: Gold profits down due to accounting changes