Plan Nord investments carry big risk – by Kevin Dougherty (Montreal Gazette – April 25, 2012)

The provincial government will spend a billion dollars over the next five years, but the viability of the project remains a question 

After two decades of keeping a low profile in the province’s mining sector, the Quebec government is coming back strong, giving itself a lead role in Premier Jean Charest’s Plan Nord to develop the mineral and other resources of northern Quebec.
Ressources Québec, a new state investment arm, is being entrusted with $1 billion in the next five years to invest in Plan Nord mining ventures and future oil and gas plays through a fund called Capital Mines Hydrocarbures. It will be headed by Jacques Daoust, who remains president and CEO of the expanded Investissement Québec.
With growing interest in Quebec’s deposits of iron ore, nickel, rare earths, gold and even diamonds, the province has increased its mining royalties.
And to aid mining and mineral processing, Quebec will pay $30 million toward a study on extending Gaz Métro’s natural gas distribution network to Sept Îles, a major Plan Nord hub. Quebec is also supporting a proposed new $5 billion rail link from Sept Îles north to the new mining zone, to be built by CN and the Caisse de dépôt et placement du Québec.
Ressources Québec will absorb the existing $235 million combined portfolios of SOQUEM, the Société québécoise d’exploration minière, and SOQUIP, the Société québécoise d’initiative pétrolièr, public-sector investment vehicles created in the 1960s to foster mining and oil and gas exploration.
SOQUEM will have $100 million to invest in exploration projects in the coming five years, as part of the new mining strategy, while the mandate of SOQUIP will be redefined in anticipation of an environmental green light next year on shale gas development in Quebec.
Quebec’s mining royalties rose to 16 per cent on Jan. 1, as the province phased in a four-percentage-point increase over three years and adopted a “mine-by-mine” approach, ending writeoffs of losses elsewhere against profitable operations.
For 2010-11, when royalties rose from 14 per cent to 15 per cent, Quebec gained $305 million in royalty income, more than its total $289 million royalty take for the previous 10 years. For 2011-12 alone, Quebec’s royalty income should be $365 million.
“Quebecers want to get their fair share out of their natural resources,” said Finance Minister Raymond Bachand in announcing the creation of Ressources Québec in his 2012-13 budget speech last month. Ressources Québec will make the province a partner, “to enjoy a larger share of the profits while taking on part of the associated risk,” Bachand added.
Quebec’s finance department believes demand for minerals will remain strong, sustained by the emerging economies of China and India.
For the 10-year period 2001 to 2011, an index of metals produced from Quebec mines rose by 385 per cent. Quebec’s baseline scenario calls for a slight fall in metal prices, which are expected to stabilize at levels 250 per cent above prices in the early-2000s. Studies by PricewaterhouseCoopers and Natural Resources Canada indicate Quebec’s royalty regime now is “one of the most stringent in Canada.” From the lowest return among Canadian provinces, Quebec now collects mining royalties 28 per cent higher than the average for the other provinces.
Quebec’s low royalties in the past made the province No. 1 in the conservative Fraser Institute’s ranking of mining-friendly provinces. With the royalty increases, the Fraser Institute now ranks Quebec fourth, said the institute’s Jean-François Minardi, who believes Bill 14, under consideration by the Quebec National Assembly, could further erode Quebec’s position.
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