With passage of Bill 70, Quebec must answer key Mining Act questions or risk investor and administrative roadblocks
Posted on January 27, 2014
Last December 10, 2013, after three unsuccessful attempts in three years, Quebec’s National Assembly adopted Bill 70, An Act to Amend the Mining Act.
This success was made possible because the minority government received the support of the National Assembly’s third party, Coalition Avenir Québec (CAQ). The CAQ is keen to burnish its “common sense” credentials in the hope that it will be seen by the electorate as a credible alternative to the two parties that have dominated Quebec politics for nearly 50 years, the Parti Québécois and the Liberals.
Bill 70 was a quickly adopted compromise. While the Bill did not introduce any conceptual surprises, it is fair to say that not all of its provisions were scrutinized in detail. As a result, some post-adoption assistance from government is required, preferably in the short term.
Mining Act, Sections 101 and 101.0.2 are two examples of provisions needing such assistance.
Section 101 requires that any mining lease application be accompanied by “a project feasibility study as well as a scoping and market study as regards processing in Québec.”
Section 101.0.2. provides that, “When granting a lease, the Government may, on reasonable grounds, require that the economic spinoffs within Québec of mining the mineral resources authorized under the lease be maximized.”
Note that these preconditions also apply before commercial operation of a mine or 20 years after commencement of commercial operations (Mining Act, Section 119).
Unanswered questions in Bill 70
That a government would want to maximize economic spinoffs, particularly downstream, is both understandable and commendable. However, in order for this to work all stakeholders — miners, financiers and civil servants — must know the rules and have the same understanding. Failure to do so will reduce investor appetite for Québec, impede mine financings and lead to less than optimum administrative behavior.
As it stands, Sections 101 and 101.0.2 of the Act raise many questions. These will need to be answered by the government quickly if it is to avoid the aforementioned reduction in investor appetite, among other issues.
Here are the key questions related to Sections 101 and 101.0.2:
- What constitutes a satisfactory “project feasibility study” and a “scoping and market study”?
- Is the processing scoping and market study limited to the applicant or must it consider a larger universe? In other words, would a smaller applicant be viewed less favorably than a large, vertically integrated multinational with existing processing activities? Could an applicant be required to do a joint venture with an ore processor? Could an applicant be required to sell its production to a Quebec facility rather than export it?
- What is an economic spinoff for the purposes of Section 101.0.2, and what is the weighting assigned to each category? For example, would the continued existence in Montreal of the world headquarters of a financially successful mining entity be viewed more favorably than the construction of a marginally profitable ore processing facility next to a mine?
- What would be the remedies for the failure to attain the agreed upon economic spinoffs? Such failure could be due to causes beyond the control of the lessee, including the inability to obtain financing on commercial terms. Would the remedies be financial or could they lead to loss of the mining lease? This is very important for project lenders. They require regulatory certainty and stability.
- Would mines near a provincial border be subject to different rules? The Labrador Trough attracts companies with iron ore operations in Québec as well as Newfoundland and Labrador.
- Could Mining Act, Section 119 be interpreted to allow the government to add spinoff requirements after commencement of construction of a mine, but before commencement of operations? These additional requirements could, among other things, degrade the financial rationale for the project and destabilize its financing.
- What is the impact of the government reviewing spinoff requirements every 20 years from commencement of operations? Would this have for effect that investment decisions must in all cases assume a 20-year life of mine?