Quebec risks driving away mining investment with Bill 14

Until recently Quebec was seen by mining executives around the world as having the best policy environment in the world for investment, mainly thanks to a predictable regulatory environment, the absence of territorial claims in Northern Quebec, high quality geo-scientific data easily accessible to miners, good infrastructure, a skilled workforce, and an attractive mining tax system. But with the introduction of Bill 14, tabled on May 12, 2011 to amend Quebec’s Mining Act, the province is now poised to introduce a high level of uncertainty that may scare investors away and seriously damage the policy attractiveness of Quebec to mining investment.

Bill 14 gives additional power to municipalities to control mining activities on their territory, something municipalities clamoured for during the heated debates over regulating the shale gas industry. But giving municipalities control over where and how mining can take place sidelines the provincial government as the sole mining regulator and runs the risk of erecting multiple barriers to mining investment, investment that creates well-paying jobs in many Quebec communities.

To date, provincial management of the mining sector has been characterized by certainty regarding the rules of the game; a transparent process, timeliness and predictability, which played a big part in the attractiveness of the province for global investors. It’s why Quebec was ranked as the top jurisdiction for mining investment by the Fraser Institute’s annual Survey of Mining Companies for three years running from 2008 through 2010.

But under Bill 14, more than 1,000 municipalities, most of which lack the necessary experience, expertise and knowledge, will be able to implement different rules applied on an individual basis in their respective jurisdictions.

For example, Article 91 in Bill 14 states that any areas within an urbanization perimeter and any area dedicated to vacationing is withdrawn from staking, map designation, mining exploration and mining operations. Article 91 also states that, in order to perform work, the holders of claims in an area that has been so withdrawn must obtain the consent of the local municipality concerned. However, no compensation is paid by any level of government for the consequences of an inability to perform work because of a failure to obtain such an authorization.

This means mining claims holders who have already invested millions of dollars in exploration in a parcel of Crown mineral land may retroactively lose, without compensation, their legally acquired right to explore for and develop minerals.

Future decisions regarding mining development in municipalities will run the risk of being politicized and unstable because of municipal power to veto mining exploration and development and because changing administrations every four years may have different opinions regarding the same mining project.

Miners understand that they have to follow sensible regulations and pay taxes. However they are alarmed when they face uncertainty over their claims. Mining is a highly cyclical and capital-intensive industry, with a long lead time between initial investment and commercial production. Exploration companies do not have production revenue and, therefore, must rely on investors who are prepared to support high-risk activities.

Bill 14 is reminiscent British Columbia’s experience in the 1990s where mining declined and BC’s share of Canadian mineral exploration fell to 5.7 per cent in 2001from 29.2 per cent in 1990. This was mainly due to the BC government’s 1995 decision to halt the Windy Craggy mining project in order to create a park that enveloped the site. This effectively expropriated the company’s considerable investment and created a great cloud of uncertainty over mining policy in British Columbia which left miners fearing to invest, lest their property be, in effect, stolen from them by the government.

Public policy actions can either stimulate or detract mineral investment. With Bill 14, Quebec’s Liberal government sends a conflicting message to investors. It gives the impression that it is actively trying to attract global mining investments in the north of the province for the Plan Nord while discouraging them in the south (under the 49th parallel) to appease a public opinion increasingly hostile to the exploitation of mineral resources. This is a risky strategy that may lead global investors to opt for other jurisdictions and damage Quebec’s ability to attract investments.