Parti Quebecois' Suggestion To Raise Quebec Mining Royalties Rate Could Be Damaging

(Kitco News ) - The Quebec provincial election is less than two weeks away and Parti Quebecois leader Pauline Marois made some waves in the mining community, stating she would look to apply hefty increases to royalties on mining companies within the province.

In a debate over the weekend between the Liberal party, PQ, Coalition Avenir Quebec and Quebec Solidaire, Marois said she would impose a minimum 5% royalty rate on the gross value of all mining production. She also said the PQ would add a 30% additional tax on all mining profits over a certain level, which she did not elaborate on.

Calls to Marois' office were not immediately returned.

The Quebec mining community, as well as competing political parties, believe this would be detrimental for mining in the province.

Premier Jean Charest and his Liberal party ushered in the 25-year $80 billion Plan Nord project announced May 9, 2011, which will mine and explore 72% of the province's vast northern land mass.

"We don't believe the Parti Quebecois' proposal is the right one," said Gérard Deltell, the current elected member of Chaveau for the CAQ in the National Assembly of Quebec. "If we raise royalties too high on mining companies, they won't invest and that means less jobs and less money for the province."

Profit-based taxation in Quebec for mining companies is already considered high on a global scale, let alone in North America. A press release from The Quebec Mining Exploration Association said the provincial tax burden is 26%, which includes 16% in royalties, while the federal government taxes an additional 15% for a total of 41% on profits in the province.

When compared to Quebec's neighbors to the east, Ontario's taxes on profits total 30% with 13.5% collected by the Ontario government, including 10% in royalties, the press release said.

While all parties are embroiled in heated campaigning, Deltell said that although he doesn't believe the Plan Nord project is perfect, he and the CAQ believe the royalties taxation on mining companies to be fair.

"The equilibrium points of the government concerning royalties are reasonable," Deltell said. "We're not looking to make any changes to the royalties collected from mining operations, we're happy with the current taxation."

Premier Charest said during the debate over the weekend that he believed the current royalty and tax system was fine. Charest's office did not reply to emails on the subject.

Deltell and the CAQ are looking to pump all royalties back into the province's debt, which as of March 31 stood at $122.4 billion. The figure does not include an additional $2 billion in debt for Quebec's hospitals and universities.

The CAQ party proposed a $5 billion natural resources fund that would be redistributed into minority stakes in mining projects which the party says will directly benefit generations of Quebecers.

Jean-Marc Lulin, president and chief executive officer of Azimut Exploration Inc. (TSXV: AZM) and also president of the mining association advised caution when looking at the political side of the mining industry in Quebec.

"The way politicians are using natural resources, trying to say that as soon as you have a mine, you're making profits, which is not true," Lulin said. "It's possible to lose your shirt in mining, just like in any other business even if it's a gold or diamond mine. It's not because you have a gold mine that you make gold profits."

The mining association is a non-profit economic and industry group. The group said in a press release from earlier that the current profit-based taxation system works as opposed to a more risky mineral value-based taxation system that Marois supports.

"It's the reason we put this news release out, just to make clear that we believe profit-based taxation is a fair system," Lulin said.

Lulin said if the company makes profit, it will pay taxes and royalties, however a mineral value-based taxation could be detrimental to smaller mines who would be forced to pay taxes despite losing money.

"The mineral value-based taxation will eventually precipitate failure of several mining operations which may be marginal during the low cycle. This is problematic," Lulin added.

As of early Wednesday morning, Charest's Liberal party leads all parties with 35% of the vote flowed by the PQ at 29% and the CAQ with 24% in a poll conducted by Canadian newspaper The National Post.

By Alex Létourneau of Kitco News

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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