Profit from the Mining Sector s Strength 1
Profit from the Mining Sector s Strength A major tool for economic development Large and diversified mining potential Profit from the mining sector s strength to develop Québec s territory A new royalty regime that maximizes financial and economic spin-offs (jobs, investments) 2
Portrait of Québec s Mining Sector 3
The Mining Sector is Highly Structuring A sector that is important for the development of our territory: A driving force for employment in the regions and throughout Québec Many villages, cities and regions have grown thanks to the mining sector Québec has developed leading expertise (equipment makers, engineering, etc.) Recognized Québec know-how Has a ripple effect on processing operations Almost 35 000 jobs including 18 000 direct jobs 4
Significant Mineral Potential Significant and recognized mineral potential iron, gold, zinc, nickel, copper, diamonds and rare earths The mineral resources potential of Northern Québec is still little-known To date, less than half the mining potential has been inventoried 5
Production up 78% since 2006 Mineral production 1 (billions of dollars) 12 10 Main m etallic m inerals by decreasing order of im portance: - Québec: iron, gold, nickel, zinc, cooper - Ontario: gold, nickel, cooper, zinc - New founland : iron, nickel, copper Ontario 8 Québec 7.7 6.8 8.2 (1) 6 4 3.7 4.6 5.6 4.6 2 Newfoundland 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1 2011: forecast of the Institut de la statistique du Québec. Sources: Natural Resources Canada and Institut de la statistique du Québec. 6
Mining Investments Up Sharply Investments in Québec (billions of dollars) 3.0 2.9 2.5 2.5 2.0 1.5 1.0 Average 2000 to 2011 = $1.5 billion 1.3 1.2 0.8 0.8 0.7 1.0 1.2 1.6 2.0 2.0 0.5 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Exploration expenses Development expenses Plan Nord: 11 new projects totalling $8 billion of investment Source: Institut de la statistique du Québec 7
A Major Impact on Québec s Economy Investments made and growth in production will have a significant impact on Québec s economy By 2015: An additional contribution equivalent to 1.3% of Québec s GDP 10% of annual economic growth 8
The Mining Sector: An Major Employer in the Regions Unemployment rate 2008 and August 2011 11.2 2008 August 2011 7.5 6.1 6.5 7.2 7.6 Abitibi-Témiscamingue Côte-Nord and Nord-du-Québec Québec average Source: Statistics Canada 9
Mining Sector Development: Strengths and Challenges Many strengths: Skilled labour, world-class expertise, economic and political stability, excellent mineral potential, clean, renewable energy competitive priced Challenges: Geographically remote, higher production and transportation costs, difficult access to resources (underground mines) 10
The New Mining Regime: Maximize Spin-offs 11
New Mining Regime Built bearing in mind: conditions in Québec the Canadian context the global framework Maximize mining royalties Maximize economic spin-offs for Québec 12
A More Demanding Regime Now applies on a mine-by-mine basis Losses of one mine can no longer be applied against the profits of another mine Incentives and deductions eliminated or reduced The rate rises gradually from 12% to 16% as of January 1, 2012 13
That Is Producing Results: $304 Million in 2010-2011, more than the Total of the Last 10 Years Mining Royalties in Québec (millions of dollars) 304 289 99 18 18 19 6 16 43 36 44-10 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Sources: Québec Public Accounts and Ministère des Finances. 14
5 0 0 4 0 0 3 0 0 2 0 0 1 0 0-1 0 0 0 6.0 % 5.0 % 4.0 % 3.0 % 2.0 % 1.0 % 0.0 % -1.0 % the Equivalent of an Average of 4.5% of the Gross Value of Production Mining Royalties in Québec (as a percentage of the gross value of production) Before reform 4.5% Average 2000-2001 to 2009-2010: 0.7% 1.8% 0.5% 0.5% 0.5% 0.2% 0.4% 1.1% 0.8% 0.8% -0.2% 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 2005-2006 2006-2007 2007-2008 2008-2009 2009-2010 2010-2011 Sources : Québec Public Accounts and Ministère des Finances. 15
Mining Royalties: $327 Million to $1.8 Billion from 2010-2011 to 2014-2015 Mining Royalties in Québec (millions of dollars) 480 4-year average Mining royalties 2010-11 to 2014-15 380 365 Revised forecasts: $1.8 billion 280 304 317 2011-12 Budget: $1.4 billion Revised forecasts 180 133 80 16 44 99 52 69 Before the reform: $327 million -20 04-05 05-06 06-07 07-08 08-09 09-10 10-11 11-12 12-13 13-14 14-15 16
The Mining Sector: Beyond Royalties In 2008, 34 021 jobs and almost $3.9 billion in GDP In 2010, total estimated tax revenues (from the sector and its suppliers) of $617 million Tax revenues from mining activities in Québec (millions of dollars) 1 Excluding the cost of measures relating to flow-through shares for individuals ($25 million in 2010). Note: Figures may not add up to the totals shown because of rounding. 17 2010 2010 to 2014 Mining royalties 304 1 764 Tax revenues Direct 303 1 960 Indirect 151 1 027 Subtotal 453 2 987 Subtotal - Tax revenues and mining royalties 757 4 751 Tax assitance for exploration¹ -140-535 Total 617 4 216
Independent Studies Confirm That Québec is Obtaining Its Fair Share PricewaterhouseCoopers (PwC), April 2011 Natural Resources Canada (NRC), June 2011 18
Study by Natural Resources Canada: Royalties 28% Higher¹ than the Canadian Average Comparison of mining royalties Québec and Canadian average, 2011 (Canadian average without Québec = 100) 128 Difference : 28 % 100 Québec Canadian average without Québec (1) Mining royalties payable for a typical project. Source: Natural Resources Canada. 19
Study by Natural Resources Canada: Tax Burden* Higher than the Canadian Average Index of mining tax competitiveness 1 (Canadian average without Québec = 100) 2003 Study 2011 Study 113 108 98 100 94 97 100 84 Québec Ontario Canadian B.-C. Ontario B.-C. Canadian 2 2 average average. 1 The competitiveness index reflects provincial and federal tax and mining royalties payable for a typical mining project. 2 The Canadian average excludes Québec. Source : Compilation by the MFQ based on data from Natural Resources Canada. * The tax burden includes federal and provincial income tax and mining royalties payable for a typical project. Québec 20
Study by PwC: In Québec, 40.9% of Profits Collected by Governments Tax burden on an investment in a typical gold mine (as a percentage of profits) 2007 Study 2011 Study 42.1% 41.1% 40.1% 40.9% 35.4% 37.3% 35.5% 29.8% 16.7% 23.0% 21.1% 20.3% 25.9% 21.6% 19.1% 13.5% Federal government Québec Québec B.-C. Sask. Ontario Québec B.-C. Sask. Ontario The highest mining tax burden of the major producing provinces Source : PricewaterhouseCoopers 21
Royalty Rates: Since 2003, Only Québec Has Raised Its Rate Mining royalty rates, Canadian provinces 2003 and 2012 Mining royalty rates 2003 2012 Difference between Québec and other provinces Québec 12% 16% - Manitoba 18% 10-17% -1% Newfoundland and Labrador 1 16% 16% 0% British Columbia 13% 13% +3% Northwest Territories 13% 13% +3% Nunavut 13% 13% +3% Yukon 13% 12% +4% Ontario 12% 10% +6% 1 The 16% rate for Newfoundland and Labrador is an effective rate. The applicable rates are 15% on 80% of taxable income and 20% on the remaining taxable income. Source: Natural Resources Canada information bulletin, June 2011. 22
Our Real Competitors: Ontario and Labrador Mineral production - 2010 (millions of dollars) Ore Québec Ontario Newfoundland and Labrador Gold 1 019 2 028 7 Nickel 633 1 143 910 Zinc 452 185 42 Copper 184 1 147 357 Iron and other ores 4 482 3 189 3 268 Total 6 770 7 692 4 584 Source: Natural Resources Canada 23
A Regime Based on Profits or on the Value of Production? 24
Each Country Is Different. Each Ore Is Different. Comparison of production costs 2009 (Canada = 100) Iron Nickel 123 100 100 43 Australia Canada Australia Canada Source : The AME Group. 25
Transportation Costs in Québec are 2.5 Times Higher than in Australia Cost of transporting one tonne of iron to China 2009 (in $US per ton) 30.6 12.6 Québec Australia Source : The AME Group 26
Australia: A Proposed Federal Regime on Profits New proposed federal royalties regime based on profits (Mineral Resource Rent Tax) Effective mining royalties rate of 22.5% (30% - 7.5%) Deduction of royalties levied by states and territories Imposed on the basis of the corporation rather than on a mine-by-mine basis Only on profits in excess of $50 million Rate rises gradually for profits between $50 million and $100 million Iron and coal only 27
According to the World Bank¹ A regime based on profits rather than on gross value of production: Is better able to capture rises in the price of resources Can adapt to costs incurred and development cycles Takes the specific features of each project into account Increases royalties on the basis of rises in prices or volumes extracted 1 World Bank, Otto and coll. Mining Royalties, A Global Study of Their Impact on Investors, Government, and Civil Society, 2006 28
Conclusion 29
A Regime That Has Positive Impact on Employment and Revenue Revenues from mining development are rising Part of the revenues will be paid into the Generations Fund to repay the debt The international situation is favourable for the mining sector Québec is in a good position to attract investments Investment and production intentions are high Let us capitalize on the sector to accelerate the development of Québec and its regions In keeping with the principles of sustainable development 30
Profit from the Mining Sector s Strength 31