Québec Mining Reforms

After multiple attempts, Québec has finally reformed its Mining Act 

As anyone who reads international headlines should know by now, Québec politics is not for the faint of heart. So it shouldn’t come as a complete surprise that reforming the province’s mining regime proved to be a bruising affair.

The first three attempts fell apart with the government and its two main opposition parties repeatedly at odds over competing claims by industry, environmentalists and Aboriginal communities.

Fourth time lucky. In December, a multi-party deal was brokered and a Bill amending the Québec Mining Act adopted in a special one-day recall of the legislature that limited debate.

As it turns out, the compromise came weeks before the announcement that mining investment in the province had plunged nearly 37 per cent in 2013, the first year-over-year decline in a decade.

The timing may not be a coincidence.

The hope is the new measures will be enough to restore the province’s reputation as a mining-friendly jurisdiction. Canada is home to almost 60 percent of the world’s mining companies and 75 percent of all mine financing, and Québec is an important part of that.

A global cyclical downturn with rising costs and weak demand are certainly partly to blame for the province’s slump. But many industry sources also blamed uncertainty over mining regulations and the four years of very public political squabbling over how to fix them.

Most people are relieved the instability is over and hope the amended framework will be enough to restart the investment tap. Does that mean everyone’s happy with the revisions? No. In fact, many senior mining practitioners say important elements of the new rules are too murky.

That uncertainty is causing them concern.

 

The revisions to the Mining Act definitely introduce concepts you may not see in other jurisdictions, says Charles Kazaz, a partner at Blake, Cassels & Graydon LLP. For example, under the changes, operators applying for a mining lease in Québec are now required to conduct a scoping and market study that lays out options for processing the raw ore in the province. It has to be submitted as part of the lease application.

“A lot of the ore mined here is processed offshore,” says Kazaz, “so in order to increase the value of ore that’s eventually exported, the government is requiring you to prepare a market study that shows whether it’s feasible to process it here.

“It’s a bit fuzzy for a lot of operators because once you get the study done, you then have to sit down with the government and see what the demands are. And that can hold up the lease. But the big issue at this point is a lot of the parameters around what the study entails – how you do it, what market you take into consideration, how far downstream you have to go in terms of processing – is not entirely clear at this stage.”

Kazaz, who is based in Montréal, sidesteps the question of whether Québec is leaving itself open to allegations it is practicing resource nationalism by pressuring operators to process locally in order to get a lease.

 “I think what the government is trying to avoid is a knee-jerk reaction of taking the ore out of the ground and sending it off to a processing facility somewhere else. I think what they want to do is take a pause and say, ‘Look, there are methods of doing that here and if there are, it should at least be considered.’”

But for all the good intentions, he says, because it forms part of the lease application, “it just adds another level about what the ask from the government is going to be. If you’re talking about iron ore, does processing mean processing into pallets or does it mean processing into steel? Do I have to build the steel mills here? That’s one of the uncertainties.”

Kazaz is also slightly troubled by what’s expected from mine leaseholders under a new economic-spinoff provision.

The new rules give the Minister of Natural Resources the power to require maximization of the economic spinoffs within Québec before mining begins, and again in 20 years. Once commitments are made and agreed upon, the mine operator may be required to form a monitoring committee with representation from the local community to make sure the promises are kept.

“The committee would monitor the commitments made on economic spinoffs over the life of the lease,” says Kazaz, adding that, again, there is ambiguity over exactly what’s expected.

“It’s not entirely clear whether it means you have to spend a certain amount of the operating budget for local businesses, or what it actually means in terms of labor or employment or purchasing. But those are the types of things they’re looking for – I think – when they talk about this economic spinoff committee.”

What is clear is that going forward leaseholders will also be required to provide the minister with information about the quantity of ore extracted, its value, and the duties paid under the Mining Tax Act. Most of the information will be made public.

 

Like so many other jurisdictions, Québec’s new mining framework was guided by sustainable development principles.

In a move that increases the level of scrutiny mine operators can expect to receive, all mining projects with production capacity of more than 2,000 tonnes a day will be subject to a public consultation process before a mining lease is granted by the government, as well as an environmental assessment.

That is sharply lower than the previous regime that required those kinds of assurances from mines producing 7,000 tonnes a day or more. All projects relating to rare earth processing will be subject to environmental assessment regardless of their processing or production capacity.

Erik Goldsilver, a partner at Cassels Brock & Blackwell LLP in Toronto, says in his view, the lower assessment threshold may turn out to be the most significant change of all.

“I think it’s pretty typical in most jurisdictions but that assessment is going to require a lot of work to get done,” he says. “It will string things out. It’s another piece in the puzzle that has to be completed before operations can commence.”

Goldsilver says many more mine operations will be netted by the lower threshold. “I think the potential is that it will capture most senior and mid-tier producing companies. There’s a greater catchment now.

“I think overall they’ve increased the regulatory regime, made it a little more burdensome.”

In another element of the commitment to environmental sustainability, leaseholders will have to provide financial security up front to cover the anticipated cost of rehabilitating and restoring a mining site.

“You have to fund the restoration, it’s very important to know that,” says Michel Blouin, a partner at Montréal’s Lavery, de Billy, L.L.P. “You have to file a report and then you have to fund the restoration. It’s more stringent than before.”

The province will dictate the amount, and require the money to be aside, before an operator is granted the lease, he says, adding the condition can be waived if the time required to obtain the money risks undermining the project’s realization.

“Sometimes the funding for the operation itself is not completely in place, so it would be hard to provide funding for the restoration.”

 

The compromise version of the new Québec mining framework that limped across the finish line is definitely more conciliatory in tone than its predecessors to various stakeholders, including local governments.

Regional and municipal governments have been given the power to deem land as “incompatible” with mining activity, or make it subject to specified conditions.

“There were excluded areas before,” says Blouin, “but rules have changed because some municipalities feel that there should not be mining in their area because it’s not acceptable, for example, if you have a place with lakes and people with country houses.”

The minister is not permitted to exempt a holder of mining rights from these conditions.

The proposed changes are expected to apply to lands under the jurisdiction of the Cree First Nations governments, which cover more than 300,000 square km in northern Québec. 

For anyone who hasn’t looked at a map recently, Québec is huge. It’s two-and-a-half times the size of France and even larger than Alaska.

Many of the metal and mineral deposits are in the province’s more remote areas on lands owned or surrounded by First Nations communities. And their initial reaction to the new mining rules was a distinct thumbs down.

The revised Act introduces a new chapter that states the government must consult native communities separately from other constituents “if the circumstances so warrant.”

It prohibits the expropriation of Aboriginal burial grounds, and specifically recognizes that taking the rights and interests of native communities into account is an integral part of reconciling mining activities with other possible uses of the territory.

When the new framework was passed, the government said it planned further consultations with First Nations but native communities were angered nonetheless.

 “This Bill does not correspond to our ancestral rights,” Innu Chief Gilbert Dominique, a spokesperson for the Assembly of First Nations of Québec and Labrador, said at the time. He threated to block any new mining project on Aboriginal land that failed to meet the approval of native communities.

“We want a veto right on all projects that have a devastating impact on our land.”

Dominique said the plan to draft a consultation policy regarding a mining project prior to beginning operations is not good enough. He said consultations must start the moment a mining claim on their land is registered.

“If need be we will go before the courts to have our rights recognized — and based on past court rulings we are confident of winning our case.”

 

Stepping back, the real question is will the revised rules be enough to bring mining investment in Québec closer to previous levels? Or will uncertainty and added bureaucracy continue to dampen enthusiasm?

Blouin says it’s tough to know for sure, but the new rules will make the lease application process more expensive.

“Each time you add to rules and regulations, it adds costs. Now you need more consulting, more reports. It’s a matter of money; it’s always money. You just add and add and add to the requirements and it makes it more expensive to operate, even to do exploration.

“But at least now we know the rules and I don’t think anything I’ve seen Québec has done would be an obstacle for anyone wanting to invest in the province. I think there are just bureaucratic and regulatory amendments. I don’t think they’d prevent anyone wanting to go into Québec.”

Bryan Coates, Chief Financial Officer of Osisko Mining Corp., a mid-tier gold producer based in Montréal, welcomed the new regime. “It’s really important that all parties work to bring closure on this and that we move on,” he said shortly after the Bill passed.

John Sabine, counsel at Bennett Jones LLP in Toronto, says it’s important for people to remember that the statute was passed with support of the opposition, and extensive input from the mining sector — which isn’t to say there won’t be a few bumps getting it off the ground.

“Sure there is uncertainty about where the regulations will go and there is ambiguity about some of the provisions. Not everyone got what they wanted, but look at what has been done or proposed elsewhere in other jurisdictions.

“Look at Venezuela or Argentina; look at regulation in Brazil. Look at what’s happening in other jurisdictions where legislation can be draconian. I was involved with a company with assets in the Congo and we had the Congolese government unilaterally revise all of the ownership contracts.”

Sabine says while there may be some grumbling about the framework, he can’t think of a safer place to mine than Québec. “It has the resources, the workforce, the infrastructure — and a legal system to deal with issues where many countries do not. So the government revised the legislation, everyone does that. So maybe there are going to be some additional costs for regulations. Everybody’s got those problems.

“It’s still a better jurisdiction in my mind than places like Indonesia, Zimbabwe or the Congo. Let’s put this in perspective please. Everybody needs to take an Advil.”

Sandra Rubin is a freelance legal affairs writer.