Quebec’s Mining Momentum

A new majority government, planned investment and legislative changes may kick-start Quebec’s mining development

Fresh from a
majority election victory April 7, Quebec’s new Liberal government has said they will revive their vision of a mining Valhalla in the North.

Plan Nord is the huge northern development initiative first announced by former Liberal premier Jean Charest in 2011, before his defeat by the Parti Québécois. Back in power under Philippe Couillard, the Liberals say they will reinstate the $82-billion social and economic development strategy, while rebalancing the debt-heavy provincial budget.

 As originally outlined, Plan Nord calls for $47 billion in renewable energy development, to be built by Hydro Québec and supported by energy off-take agreements with mining companies. It foresees $33 billion worth of mining and oil and gas projects, aided by $2 billion in roads, rail lines, airports, telecommunications, hospitals and schools. It would all be built over 20 years in the area north of Quebec’s 49th parallel — an expanse twice the size of France that contains huge deposits of iron, gold, nickel, copper, uranium and other metals, plus shale-bound oil and gas and, currently, just 160,000 people. The government estimates private-sector resource development, led by mining, will generate some $14 billion in taxes and royalties, while creating or maintaining 20,000 jobs.

The government would directly fund only the $2-billion infrastructure cost. In addition, the province would invest $1.25 billion in various private-sector resource projects in order to support smaller Quebec companies, spur economic activity and earn a rate of return for the province.

“I think the buzz is, everyone wants Plan Nord to go ahead. But it’s a really big project,” says Martine Guimond, head of corporate finance, mergers and acquisitions with Gowling Lafleur Henderson LLP in Montreal. She says the new government has issued no new overall numbers for the project since coming to power, and the $47 billion in spending originally allocated to Hydro Québec by the Charest Liberals is a very large number, even over two decades.

“I don’t know what Hydro Québec will say about that,” Guimond says. It may be a provincial crown corporation, but it has its own board and its own shareholders, she observes.

Raymond Bachand, strategic advisor for Norton Rose Fulbright Canada LLP in Montreal, was Liberal finance minister during the Charest regime.

“As minister, I was enthusiastic but also concerned to ensure the finances,” he says of Plan Nord. He says he believes the broad outlines of the plan are reasonable in the long term, in part because the plan calls for government spending to be tied to new tax revenue and investment income from equity positions in mining companies.

Regarding Hydro Québec investment, Bachand says, when he was in cabinet Hydro had clearly identified some $18 billion worth of projects that were in preliminary planning stages, while others were just concepts based on hydraulic potential. For him, it’s another indication that Plan Nord will unfold with government matching its spending to the pace of industry investment.

Bachand says remote mine developers, such as those in the iron-clad Labrador Trough, will have to be willing to invest in big-ticket joint ventures with the government to build needed infrastructure, including roads, rail lines and electric power lines. Northern hydro service, he says, will cost less than the 50 cents per kilowatt hour that remote mines typically pay for stand-alone, diesel-generated power — but more than the five cents per kilowatt power costs in the south.

In its June 4 budget, the government said it will re-introduce legislation this fall to create the Société du Plan Nord, an agency to coordinate various initiatives under the plan. A total of $63 million will be spent on Plan Nord in the 2014–15 budget year, including up to $20 million to study the feasibility of a rail line to move iron ore 800 km from the Labrador Trough to Sept-Iles on the St. Lawrence Seaway. Two large mines are already in operation there and six other companies have staked major deposits.

CN Rail proposed to build a line to serve the iron ore projects in the Trough and estimated it would cost some $5 billion to build. But mining companies said they wanted to own their own line and they’re now in discussions with the government to outline a potential joint venture.

Jean Gagné, of Fasken Martineau DuMoulin LLP in Montreal, says he believes the study of rail service to the Labrador Trough will be the first test of serious private-sector interest in Plan Nord.

“I think the big signal will be in the Labrador Trough,” Gagné says. “There’s big potential there and I think the government is looking to do something specific.” But he says companies will have to commit to a joint venture, and the study itself could take up to 24 months.

As Fasken’s Jean Masson points out, mining investment worldwide has been stalled by a slump in commodity prices. Iron ore prices that peaked a fraction below $80 per tonne in March of 2011 were off 62 per cent at $30.65 (Cdn) in June of 2014.

“But Plan Nord remains a very exciting project for Quebec,” Masson says. He notes that good projects are proceeding in the province. Goldcorp’s Éléonore gold mine at James Bay is moving toward first production before year end, Stornoway’s Renard diamond mine is under construction and the Tata Steel DOS project began iron ore shipments late in 2013.

“We have the feeling that there is some momentum here,” Masson says.

He says one of Quebec’s big advantages over other mining jurisdictions, such as Ontario’s Ring of Fire, is a far more advanced and accepted framework for Aboriginal participation in projects. While Ontario has recently seen a $3.3-billion project in the Ring of Fire placed on hold due to Aboriginal opposition, Quebec faced its native treaty issues in the 1970s. To resolve a dispute over phase one of the James Bay hydro project, the province signed a far-reaching agreement with the Cree and Inuit, which was renewed in 2002 after cancellation of the Great Whale hydro project. That deal has since been tested by the successful completion of three hydro projects.

“The framework is there,” Gagné says. “We really have to commend the government of Quebec. They really did a good job there.” He notes that no agreements have yet been reached with the Algonquin and Innu, but their relationships with the government are generally positive.

Gagné says one area of uncertainty raised by Plan Nord is the proposed protection from development of 50 per cent of the territory above the 49th parallel.

“I think it makes sense,” but he adds that no one is precisely sure which areas will be protected and which will be open to development. He says he’s heard that “there may be great deposits on some reserves” and some or all of these may well be off limits. Overall, he says, he expects decisions on protected areas will be made on a case-by-case basis, with environmental and social impacts weighed against the benefits of development.

A similar issue is raised by the new Act to Amend the Mining Act, Bill 70, a legislative compromise that was passed by the former PQ government just before its defeat. Bachand’s Norton Rose colleague, Jean-Philippe Buteau, says passage of Bill 70 was met by the mining industry with “a general sense of relief,” after three previous attempts to update the act failed. But it remains to be seen how certain new sections will work in practice, including the right of municipalities to declare “mining-incompatible zones” of any size within their jurisdictions.

Gowlings’ Guimond notes that the minister does not hold an absolute veto over such zones, as he would have under the previously defeated proposal, the PQ’s Bill 43. She says it’s a new power that some municipalities were adamant in demanding, but its use is likely to be tempered by the need for jobs.

Buteau says that, while Bill 70 is tougher on mining companies than the old act, it really just brings Quebec law current with other jurisdictions around the world in terms of environmental and social provisions.

The new law requires provincial approval of an environmental remediation plan and a financial guarantee covering 100 per cent of estimated remediation costs before a lease can be granted by the Minister. But Buteau says that’s consistent with other jurisdictions and “we could not accept mining companies going away and leaving a mess behind.”

The new law establishes a local residents’ monitoring committee as a condition of each new mining lease, but Buteau says the new government has not yet had time to write regulations governing committee activities. He says the committees are really about ensuring “clear lines of communication” between mining companies and local communities. It’s not expected committees will have any powers of their own but the minister retains the power to revoke a lease if he or she feels a local committee is being ignored.

“My guess, it’s going to be taken seriously by the mining companies,” he says.

The good news for companies is that the new law does not require an expensive and time-consuming feasibility study on ore processing in the province, as Bill 43 would have done. Instead, it requires a much less onerous market assessment.

Overall, he says, Bill 70 ends the uncertainty associated with an out-dated act that was due for change. “Uncertainty makes the money go away,” while certainty has the opposite effect.

Lawyers say the intended powerful stimulus of Plan Nord, combined with the certainty of a new Mining Act, sends a clear message to the industry. Now it’s up to companies to weigh their options.

 

Brian Burton is an energy and legal-affairs writer in Calgary.