NEWS RELEASE: $304 million in mining royalties in 2010-2011: QUÉBEC HAS COLLECTED IN A SINGLE YEAR MORE THAN IT DID IN THE 10 PREVIOUS YEARS

A demanding mining regime that enables Québec to obtain its fair share from its natural resources

Montréal, September 15, 2011 – “The new mining royalty regime enables us to attain the objectives that we set, i.e. to obtain from mining companies fair compensation for our natural resources without discouraging investment,” Minister of Finance and Minister of Revenue Raymond Bachand said today at a technical
information session held jointly with Minister of Natural Resources and Wildlife and Minister responsible for the Plan Nord Clément Gignac.

Minister Bachand indicated that the mining royalties the government collected reached $304 million in 2010-2011, more than double the $133 million originally forecast in the 2011-2012 Budget.

The difference stems from the payment by mining companies of additional amounts during the last two months of the 2010-2011 fiscal year. Several factors account for the additional revenues: aside from changes in the royalty regime, i.e. an increase from 12% to 14% for part of the 2010-2011 fiscal year and the application of the mineby-mine principle, they are also attributable to an increase in the volume of resources mined and higher prices for the resources.

The Minister noted that 2010-2011 was a transitional year: the mining royalty rate stood at 14% from March 2010 to December 2010, then rose to 15% on January 1, 2011, and will reach 16% on January 1, 2012.

Royalties are now expected to reach an average of $365 million over each of the next four years. Accordingly, over the five years from 2010-2011 to 2014-2015, revenues from mining royalties should total $1.8 billion, i.e. $400 million more than anticipated in the last Budget ($1.4 billion) and $1.5 billion, i.e. a five-fold increase, more than forecast prior to the complete revision of the regime in March 2010 ($327 million).

Minister Bachand added that, when royalties are included, total tax spinoff from the mining sector stood at over $600 million in 2010 and will represent over $4 billion between 2010 and 2014.

A mining regime that is bearing fruit

“The substantial amounts that we are now collecting stem from the application of the new mining royalty regime, which has been in force since March 2010, and current economic conditions, which are highly favourable to this industry segment. In fiscal 2010-2011 alone, mining royalties were higher than all of the royalties collected during the 10 previous years. The $304 million collected in 2010-2011 represents 4.5% of the value of production, while for the last decade, royalties collected based on the value of production were less than 1%,” the Finance Minister said.

He noted that the revision of the mining royalty regime largely took into account the recommendations that the Auditor General formulated in April 2009. “The overall parameters of the mining royalty regime were thoroughly revised in the 2010-2011 Budget. Accordingly, in addition to the increase in the royalty rates, which are rising gradually from 12% under the old regime to 16% on January 1, 2012, numerous incentives and deductions are being reduced or eliminated. It should also be emphasized that the basic changes to the regime that we have made centre on its application from now on to mining profits on a mine-by-mine basis. The Québec government will now receive royalties for each mine that a given company operates, thus avoiding the losses on one mine being deducted from the profits on another
one,” Minister Bachand said.

Studies confirm that Québec is one of the most demanding provinces as regards mining taxation

The Minister of Finance also mentioned a study on mining taxation in Canada conducted by PricewaterhouseCoopers (PwC) and recently updated, according to which Québec has become one of the most demanding provinces as regards mining taxation.

“The PwC study presents a typical mining project that reveals that no less than 40.9% of mining profits are collected in taxes and royalties when account is taken of all tax levies (Québec and federal). Québec ranks third in Canada from the standpoint of the highest overall tax burden. Moreover, among the four leading producing provinces, i.e. Saskatchewan, Ontario, British Columbia and Québec, we rank first for the levies imposed on mining companies. With the complete revision of our royalty regime, we are collecting a maximum of fiscal levies in an environment in which we must remain competitive, especially with respect to the main producing provinces in Canada, including our neighbour Ontario, which applies a 29.8% rate,” Minister Bachand emphasized.

The previous edition of the PwC study, produced in 2007, showed that for a typical mining project, the Québec tax burden, as a proportion of profits, stood at 16.7%, which relegated Québec to last place among the main mineral ore producing provinces. The new edition of the PwC study indicates that the tax burden reached 25.9% in 2010, which ranks Québec first. Lastly, the PwC study reveals that from the standpoint of the mining royalties collected during the useful life of a typical mine alone, Québec has the highest royalties among the main producing provinces.

The Minister of Finance also indicated that another study, published last June by Natural Resources Canada, points in the same direction. The study compares the taxation rates on mining revenues in Canada and in other countries and confirms that Québec is now one of the most demanding provinces as regards mining taxation. According to the data from Natural Resources Canada, Québec collects 28% more royalties than the Canadian average.

“In the wake of highly favourable economic conditions for the mining sector, we have structured our initiative in an orderly, transparent manner. We have adopted a development strategy: The Plan Nord. We have demanded much higher mining royalties for mineral resources mined in Québec, without compromising the 34,000 jobs in the sector, which are found, in particular, in the regions. We have proposed the amendment of the former Mining Act to adapt it to the principles of sustainable development. In this way, all Quebecers will be able to benefit from this major wealth creation project, in addition to spinoffs from the new mining royalties regime,” Minister of Natural Resources and Wildlife Clément Gignac said.

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Sources:

Catherine Poulin

Director of Communications
Office of the Minister of Finance,
Minister of Revenue and
Minister responsible for the Montréal region
418-643-5270
514-873-5363

Jolyane Pronovost

Press Officer
Office of the Minister of Natural
Resources and Wildlife and
Minister responsible for the Plan Nord
418-643-7295

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