PQ piles taxes on Quebec miners – by Marilyn Scales (Canadian Mining Journal – May 7, 2013)

Marilyn Scales is a field editor for the Canadian Mining Journal, Canada’s first mining publication. She is one of Canada’s most senior mining commentators.

As promised in the last provincial election, the Partie Québécoise has slapped new taxes on Quebec’s mining industry. Beginning in 2014 producers will pay either a royalty or a graduated tax on the company’s profit margin whichever is higher.

The royalty is set at 1% of the first $80-million-worth of production, and at 4% on amounts greater than that. It will apply to any mine regardless of profitability.

The graduated tax starts at 16% and rises to a top rate of 28%. This option claws back profits made at a given operation.

The new taxes are less than promised by the PQ during the election. They were scaled back from the $388-million target due to the recent softening of commodity prices. Nonetheless, the measures are expected to add between $73 million and $200 million to the provincial pocketbook each year.

The Quebec Mining Exploration Association (AEMQ) expressed disappointment at the new taxes. “The Quebec mining sector is already suffering from severe a financial crisis, and in the last few years, we have had to deal with significant mining taxes.

Any changes to the mining tax system threatens our ability to withstand this crisis and especially to regain momentum. Consequently, this new change hinders the progress of our mining sector. It is an incomprehensible move on the part of a government that claims to want to encourage investment in natural resources,” declared AEMQ president Philippe Cloutier.

No everyone condemns the new taxes. Stornoway Diamond Corp. president and CEO Matt Manson said, “The new system of mining taxation that is being proposed is a reasonable balance between maximizing both taxation revenue and the type of returns that are expected by investors and lenders in an increasingly competitive world for mining capital allocation.”

Stornoway is building Quebec’s first diamond mine, Renard, in the north-central part of the province. The company participated in the consultations that took place between the government and industry before the new taxes were announced.

This writer finds it perplexing that any government that claims to value the mining industry would heap new financial burdens on it in this economic climate.

For three years in a row (2008 to 2010) the Fraser Institute ranked Quebec the best jurisdiction in the world to explore for and produce minerals. Now the province has fallen not only out of the top 10 but all the way to 39th. The timing leaves one to wonder about the province’s last changes to the royalty and tax rules only three years ago.

The mineral industry in Quebec may be facing tough times for years to come.

A definitive explanation of the new tax regime is available from Norton Rose. Click here: http://www.nortonrose.com/ca/en/knowledge/publications/80009