December 16, 2013 – A recent study from Fraser Institute finds that uncertainty about protected areas and environmental restrictions, combined with increased regulation and tax changes, has damaged Quebec’s image in the eyes of mining investors.
The study, Quebec’s Mining Policy Performance: Greater Uncertainty and Lost Advantage, highlights four key barriers to investment in Quebec and the potential impacts to the province.
“When a jurisdiction loses mining investment, it loses jobs for skilled workers, wealth that goes along with those jobs, and the subsequent government revenue. 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,” said Dr. Kenneth P. Green, project director and senior director of natural resource studies at the Fraser Institute.
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, noted the study. These changes include commitments to protect 12% of Quebec’s northern territory (nearly 1.2 million sq. km.) and intentions to exclude up to half of the territory from industrial use.
“Uncertainty over protected areas effectively disqualifies land for exploration and mining, and douses any potential economic benefits such as job-creation. Uncertainty may also discourage exploration investment in and around potentially protected areas where the risk of increased protection looms,” said Alana Wilson, study author and senior economist with the Fraser Institute’s Centre for Natural Resources.
Uncertainty over environmental regulations
The study also looks at environmental impact assessments and public consultation, and warns against the politicization of the process.
“Uncertainty in environmental regulations deters investment by threatening projects with new restrictions and prohibitions, creating the perception that special interests—rather than sound science—guide policy decisions,” said Green.
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, according to the study.
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,” Wilson said.
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 said.
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.
“Mining has played an important role in the development of Quebec and continues to provide opportunities for jobs and wealth creation, especially in remote and rural areas. Yet several years of policy uncertainty and politicization of the mining industry has created great uncertainty for mining companies, raising the costs and risks of investment,” Green said.