Quebec signals flexibility on controversial mining plan

MONTREAL, March 15 Fri Mar 15, 2013 4:26pm EDT

MONTREAL, March 15 (Reuters) - The Quebec government on Friday hinted at flexibility on its plan to raise royalties mining companies pay on minerals extracted in the province, and said Quebec would remain competitive even if the mining rules changed.

"We are open to changes," Quebec Natural Resources Minister Martine Ouellet said at a Montreal forum on a proposal by the governing party to increase royalty rates, which companies say will deter investment. "For instance, the royalty could vary as a function of the number of years of exploitation of a mine."

The separatist Parti Quebecois government, elected in 2012, has said it wants to impose royalties of 5 percent on the gross value of all mining output, plus a 30 percent surtax on mining profits over a still-unspecified rate of return.

The changes will boost government revenues by C$388 million ($380 million) over five years, it says.

But the Parti Quebecois has only a minority of seats in the provincial legislature, and it will likely have to make changes to the proposals in the face of opposition, from other parties in the legislature as well as from business.

"We want to put into place a royalty regime that favors a better sharing of mineral wealth," Ouellet said. "The state has a responsibility to ensure that Quebeckers get their fair share."

She added: "We are convinced it's possible to improve royalties while maintaining a competitive investment environment."

French-speaking Quebec is home to two dozen active mines, producing everything from iron ore to precious and base metals. Big players include Rio Tinto Plc, ArcelorMittal SA , Goldcorp Inc and other major miners.

In 2012, miners extracted at least $8.2 billion in minerals in Quebec, according to a government consultation paper released ahead of the forum.

But the government may have proposed the royalty plan at an inopportune time. Metal prices climbed in recent years, but escalating costs have cut into profitability. That has the bosses of top mining companies preaching austerity, vowing to cut costs and aiming to minimize risk.

"This is the second time the royalty regime has changed," said Alain Cauchon, VP Human Resources ArcelorMittal, referring to an increase in payments from 12 percent to 16 percent introduced by the previous Liberal government.

"Investors are starting to ask questions about Quebec. Jobs are being put at risk. We shouldn't accept it... Our investors are looking ahead 15 to 20 years minimum. And we're seeing the rules of the game change every two years."

Quebec mining duties of 16 percent of an operator's profit are already above the 10 percent rate on taxable profit over C$500,000 in neighboring Ontario.

Other companies were more conciliatory.

"We're pretty confident we can find a middle ground some place in all of this. " said Dale Coffin, spokesman for Agnico-Eagle Mines Ltd, a gold miner.

"I think the government realizes that yes, we agree to pay royalties, but there has to be some balance between what's fair in extracting the royalties and what's fair for investors who are taking all the risk," Coffin said.

"Is there room to move? Perhaps there is for the industry but there's not room for the 5 percent that they want. The 'superprofit' is a vision that may not ever happen," he said.

Australia drew criticism from miners when it proposed a "super tax" on the profits of iron and coal miners. The tax, introduced last year, raised A$126 million ($131.13 million) in its first six months, far below what the government had hoped.

Ouellet said the government was ready to look at how best to apply its proposals.

"We are aware of the reality and differences from one mine to the other. It depends on the mineral, the investments necessary, the costs of production, the access to infrastructure and other factors," she said, noting that half of Quebec mining companies paid no royalties in 2012.

Representatives from industry and government will meet on Saturday to work out the details of the new regime, which will come into effect in the spring.

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