[Quebec] Mining regime requires major balancing act – by Peter Hadekel (Montreal Gazette – August 22, 2012)


MONTREAL – The mining industry finds itself at the centre of an election campaign debate over the royalty regime now in place in Quebec. It’s a debate that’s increasingly polarized.
On one side are those who see the industry as a future generator of jobs and economic growth, a vital part of the Liberal government’s Plan Nord strategy. On the other are those who view it as a dark force that exploits the environment and doesn’t pay its fair share to the public treasury.
The mining business is volatile at the best of times. The price of metals can fluctuate wildly with the economic cycle, leading companies to defer or cancel even the most promising projects.
A report this week from consulting firm Ernst & Young noted that in the first half of the year the number of investment transactions announced in Canada fell by 26 per cent, representing a 41 per cent drop in investment value. 
You can blame the plunge on uncertainty over the European debt crisis and the economic slowdown in China, a big customer for metals and minerals.
Even in good times, global competition is such that if they don’t like the political system or royalty regime in place, mining firms can shop around for other jurisdictions in which to operate.

So the government has to balance the need for adequate returns to the taxpayer with the risk that investment could flow out of the province if royalties are too steep.
Getting it right can be tricky, says a study on Quebec’s mining regime, prepared for the law firm Fraser Milner Casgrain.
A new royalty regime in this province took effect in 2010, increasing the tax rate on mining company profits to 16 per cent from 12 per cent. But that hasn’t quelled the debate over whether companies are getting too sweet a deal from the government. Some, like the Parti Québécois, want them to cough up more.
The study compares Quebec’s system to other models around the world and concludes that the royalty regime in place right now is the best we could choose in the circumstances.
Given the nature of the industry in Quebec, there are clear advantages to the present system, says Michel Brunet, a partner at Fraser Milner Casgrain.
For the rest of this article, please go to the Montreal Gazette website: http://www.montrealgazette.com/business/Peter+Hadekel+Mining+regime+requires+major+balancing/7124750/story.html

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