A Distinct Mining Society

The price of metals and Quebec’s attractive regulatory environment is stimulating the provinces mining industry. Quebec is also conducting extensive exploration and mining operations and mining investment is expected to reach nearly $2 billion in 2008. Approximately one quarter of that is spent on exploration.

The sharp rise in the price of metals like copper, nickel, zinc, gold and iron, caused by economic growth in the emerging countries of China, India, Brazil and Russia, will now help Quebec enjoy its largest period of mining industry expansion in more than 20 years.

In fact, the Fraser Institute places Quebec at number one on its 2008 worldwide Investment Attractiveness Index. Moreover, Quebec came in second, behind Mexico, on the Institute’s Mining Potential Index

The main projects for Quebec’s mining industry include gold projects in the Abitibi region as well as nickel, copper, zinc, uranium, platinum, iron and diamond projects in Northern Qubec.

Some of the main projects include: • Xstrata’s Raglan Nickel project worth nearly $1 billion;

• Osisko’s Canadian Malartic Gold project worth nearly $750 million;

• Goldcorp’s lonore Gold project, costing more than $500 million;

• Canadian Royalties’ Nunavik Nickel project worth nearly $450 million; and

• Consolidated Thompson’s Lac Bloom Iron Ore project worth nearly $400 million.

Role of Geovernment

While the price of metals has given the industry a boost, the Quebec government has also played its part. Its attractive and stable policies lets investors know what to expect, enabling them to make their plans accordingly.

Quebec is one of Canada’s most generous provinces in terms of tax incentives and taxation levels for mining investors and companies. For instance:

• Quebec residents who purchase flow-through shares can deduct up to 150% of their flow-through shares investment against their income;

• Revenue Quebec provides tax incentives in the form of tax credits amounting to 45% of exploration expenditures (up to 38.75% as a refundable credit) that are not financed by flow-through shares;

• The province does not collect royalties on gross revenue from resources extracted from Quebec deposits, rather it charges mining duties of 12% on net operating profit; and

• Quebec Natural Resources Ministry grants a refundable mining duty of 12% to operators whose mines operate at loss or engage in exploration expenditures.

Growth is good but has its challenges

With the boom, the industry also faces a number of serious challenges including lack of labour, and energy resources , rising costs and credit markets issues.

With respect to labour, the growth in Quebec’s mining industry has led to recruiting problems in job categories; like mining engineers, geologists, drillers and miners and is having a hard time finding workers.

The remarkable expansion is mirrored world-wide only adding to the recruitment problems. It is very common to find workers leaving the Abitibi region to work in Mexico or French-speaking Africa for experience and money.

A solution could lie in the unemployed forest workers in Quebec’s mid-north. While the transition is relatively smooth for some occupations, forest machinery operators need to be retrained for mining. However, efforts are being made and new retraining programs are now being offered.

On the energy front, rising costs and availability are significant concerns for this very energy-intensive industry. The movement of the Quebec mining industry farther north is creating new energy needs like transportation and generator fuel. Positive options include wind and diesel generators and are more frequently appearing in all mining project feasibility studies.

The global credit crunch will create additional problems by reducing financing possibilities for new projects. Also, the major industry consolidation of recent years has reduced the number of Quebec mining companies able to finance large projects.

Going forward

The future is very promising for Quebec. While most indicators are still showing strong performance and continued growth, we have seen a decrease in margins due to cost increases. Continuing issues with skills shortages will make it harder to bring new supply to the market. A top priority will be for the Quebec industry to keep capital and operating costs under control to profit from this windfall.

More information:www.pwc.com/ca/mining

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