What the PQ Victory Means for Mining in Quebec

The Canadian province of Quebec has long held the reputation of being one of the world’s friendliest mining jurisdictions. It’s also home to vast mineral wealth, particularly in the north, where an area known as the Labrador Trough spans the border between Quebec and the neighboring province of Newfoundland and Labrador.

Right now, 15 billion tonnes of iron ore are being explored in the Trough — enough to make Canada the third-biggest producer of the metal. To bring much-needed infrastructure — such as roads and airports — to the remote area, the Quebec government has devised a $2.1 billion, 25-year plan known as Plan Nord. The Liberal party, which governed the province until last week, felt the strategy would attract $80 billion in public and private investment to the area.

Right now, producing majors operating in the Trough include ArcelorMittal (NYSE:MT) and Rio Tinto (NYSE:RIO,LSE:RIO,ASX:RIO), while juniors include Adriana Resources (TSXV:ADI), Champion Iron Mines (TSX:CHM) and Century Iron Mines (TSX:FER). Many of these companies worked closely with the government to develop Plan Nord.

However, there are fears that all that has been built could now be in jeopardy in the wake of last week’s provincial election.

Parti Quebecois victory was “highest risk” outcome

When the ballots were counted on September 4, the Parti Quebecois (PQ), led by Pauline Marois, managed to eke out a win over the governing Liberals, taking 31.94 percent of the popular vote to the Liberals’ 31.21 percent. That amounted to a slim margin of victory for the PQ in the province’s legislature: the party took 54 seats, the Liberals won 50, and a new party, the Coalition Avenir Quebec, took 19.

The return of the Parti Quebecois could spell trouble for miners for two reasons. For one, it could introduce an element of political instability because the party favors holding a referendum on separating the province from the rest of Canada. But of greater and more immediate concern is the party’s position on resource royalties and Plan Nord.

During the campaign, the PQ proposed a 5 percent minimum royalty on the value of all minerals mined in the province. It also favors adding a 30 percent tax on mining company profits above 8 percent. The PQ estimates that this tax — which is similar to one recently enacted in Australia — would generate an additional $388 million of revenue for the government.

Marois has been more vague about the future of Plan Nord, though she has said that she would like to “redo” it. She has also referred to the strategy as “Plan Marketing du Nord,” and has characterized the $2.1 billion investment as a giveaway to the private sector.

“We have carefully looked at the platforms of all the parties, and the PQ’s proposals would have the most impact,” Dominique Dionne, chair of the Quebec Mining Association, told Resource Investing News. “They represent the highest risk.”

Minority government will force PQ to compromise

However, despite its victory, the PQ fell short of controlling a majority of seats in the legislature. As a result, it will need to seek support for its proposals from other parties. “There will be a need for compromise and negotiation on any changes affecting the mining sector,” added Dionne. “We feel the opposition will look at these proposals prudently.”

Moreover, while it may disagree with the Liberals on the details, the PQ does support development in the north, so it’s likely that any changes the government makes will not be as significant as feared.

“This is not the first time the PQ has been in power,” said Dionne. “We have worked with them in the past, and they have brought in positive measures [for the mining industry]. However, because the timelines for mining projects are so long — often 10 to 15 years to get to a mine — the government needs to quickly take positions in order to maintain the stability and predictability these investments require.”

It’s business as usual for miners in the Labrador Trough

Mark J. Morabito, executive chairman of the board at Alderon Iron Ore (TSX:ADV,TSXV:ADV), echoed the need for the PQ to quickly make its plans known. “Some projects could be put on hold pending clarification from the government,” he said in an interview with Resource Investing News. “However, it’s important to point out that this will have no impact on projects on the Labrador side of the Trough, including Alderon’s. Whatever Quebec does will not affect us.”

The company plans to start production at its Kami project, near Labrador City, in 2015. The deposit contains an NI 43-101 compliant resource estimated at 1.1 billion tonnes of measured and indicated iron ore grading 29.8 percent iron, plus an additional inferred resource of 277.4 million tonnes at 29.5 percent iron.

Key to miners on both sides of the Quebec/Labrador border is the ongoing development of the deepwater port at Sept-Îles, Quebec. Alderon recently signed a deal with the Sept-Îles Port Authority to ship all of the Kami project’s ore through the port.

But that, too, will remain unaffected no matter what the PQ does, said Morabito. “It’s a federally operated port. The government of Quebec can’t touch it. And the province doesn’t have the power to tax resources being shipped across its territory, either.”

On the whole, Morabito sees the PQ victory as an empty one. “Here was a party that was up against an unpopular government with an unpopular leader, and all it could muster was a 1 percent win in the popular vote and a four-seat victory. I don’t think they’ll be allowed to do anything that will affect business,” he said.

Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.