Quebec Mining Exploration Association

Quebec Mining Exploration Association

August 07, 2012 16:05 ET

CORRECTION FROM SOURCE: SECOR-KPMG and FMC Report

Factual Analysis of Mining Royalties

ROUYN-NORANDA, QUEBEC--(Marketwire - Aug. 7, 2012) -

The following corrects and replaces the release sent on August 7th, 2012 at 1:23pm ET.

The Quebec Mining Exploration Association (AEMQ) wishes to comment on the SECOR-KPMG and FMC Report of Mining Royalties, made public in late July. This study fills an important gap in understanding the different mining tax regimes and their application framework in various jurisdictions worldwide.

Since the Auditor General's report published in 2009, the issue of mining royalties has consistently fueled public debate, with some statements lacking reference to the facts. Based on reasonable assumptions underpinning the price of metals, the SECOR-KPMG and FMC study meticulously evaluates the impact that different types of royalties would have on Quebec's mining industry.

The findings from the SECOR-KPMG and FMC study reaffirm certain conclusions from other large-scale studies conducted on mining taxation including those conducted by the World Bank (2006), Natural Resources Canada (2011) and PricewaterhouseCoopers (2011).

"The politicization of the debate surrounding mineral resources, with argument built on a shaky foundation, sometimes leads to outrageous statements. It is time to return to the facts. This study is a reminder that the development of our mining heritage is primarily an economic issue in which Quebec should position itself in a global competitive environment," said Jean-Marc Lulin, President of AEMQ.

Profit-based taxation (present tax system) seems well-adapted to the current mining context in Quebec. However, Quebec's tax burden stands among the most stringent in the world, particularly in North America. The tax burden accounts for 40.9% of profits with taxes and fees distributed at a rate of 15% to the federal government and 25.9% to the province of Quebec, including 16% in royalties. Compared to Ontario, the tax burden, also based on profits, amounts to 29.8%, with 13.5% collected by Ontario, including 8.6% in royalties.

Mineral value-based taxation could yield more revenue when metal prices are high. However, when metal prices are low, such a system would threaten the viability of the mining industry and weaken the economies of all mining regions. With this type of taxation, mining operations could be forced to pay royalties even if their operations show a deficit, which may precipitate their closure. The implementation of such a taxation regime would increase the risk level of companies and would be a powerful deterrent to mining investment in Quebec.

Quebec industry represents 1% of the global mining industry and mostly exploits relatively small-scale mines that are costly to operate. Until now, Quebec has strategically compensated for disadvantages through the provision of a stable fiscal regime, quality of expertise and vast land. "There is a risk of making a higher bid in the short term at the expense of mineral resources. The life cycle of a deposit, from exploration to closure, often spans over 50 years. The continued success of the Quebec mining model through successive administrations with differing politics is due to its predictability and stability. Destroying such dynamics would be irresponsible," said Mr Lulin.

AEMQ also wishes to point out that during the legislature that just ended, firmly opposed to various bills that would have resulted in the abandonment of state prerogatives in the management of its mineral resources.

Two critical issues call for vigilance:

  1. The State's responsibility in the development of mineral resources cannot be fragmented or delegated to a multitude of local entities. Mineral resources are part of Quebec's rich collective heritage and as such, the State must be its sole manager. With fairness and transparency, the State must redistribute mining benefits to all stakeholders, including host regions and municipalities.

  2. The desire to remove 50% of the Plan Nord's territory away from exploration and exploitation activities appears to be a foolish and counterproductive move for the future of Quebec. It is inconsistent with economical, social and environmental sustainable development. Requirements for land protection can coexist in harmony with mining activities and serve the long-term interests of all Quebecers.

About the Quebec Mining Exploration Association (AEMQ)

The Quebec Mining Exploration Association (AEMQ) is a non-profit economic and industry association founded in 1975. It represents prospectors, geologists, geophysicists, entrepreneurs, developers, and other players in Quebec's mining exploration field. AEMQ's mission is to contribute increased geo-scientific knowledge of Quebec's mineral potential, to develop sustainable and responsible mineral exploration and support the expansion of Quebec's mining entrepreneurship.

AEMQ has over 2184 individual members (prospectors, geologists, geophysicists, brokers, tax experts, lawyers, etc.) and over 242 corporate members (major and minor mining exploration companies, geological and geophysical engineering consultancy firms, drilling companies, service providers, equipment manufacturers, etc.).

AEMQ is managed by a board of directors and 20 members representing different aspects of mining exploration in Quebec. AEMQ's headquarters are located at 132, avenue du Lac, Suite 203, Rouyn-Noranda (Quebec) J9X 4N5. For further information, please consult the AEMQ website at www.aemq.org.

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