Friday 21st October 2016

Resource Clips

Quebec’s distinction

Both interventionist and capitalist, the province’s mining-friendly policies defy ideology

by Greg Klein

Quebec’s provincial government might buy rail and port facilities that serve Bloom Lake, as well as invest taxpayers’ money in the iron ore mine. Economy Minister Jacques Daoust didn’t commit to anything, but Bloomberg reported he’s open to the idea. Even that shows Quebec’s distinctive approach to mining, a strategy that eludes political stereotypes but suggests long-term vision based on confidence that commodities markets will improve.

Making that confidence all the more remarkable is the iron ore collapse which shut down so much Labrador Trough activity. Rio Tinto NYE:RIO so far shows no sign of relenting on its price-slashing tactics, although Axis of Iron fellow travellers BHP Billiton NYE:BHP and Vale NYE:VALE are reportedly backing off.

Both interventionist and capitalist, the province’s mining-friendly policies defy ideology

But not after driving prices down and mines out of business. Some of the casualties have littered both the Quebec and Newfoundland sides of the Trough. Last year Labrador Iron Mines TSX:LIM didn’t bother resuming seasonal operations at Schefferfield. Later that year Cliffs Natural Resources announced impending closures of its Wabush and Bloom Lake mines. Then the Iron Ore Company of Canada announced plans to lay off part of its Labrador City workforce, in keeping with majority-owner Rio’s cost-cutting craze. But at least the mine’s surviving, as is ArcelorMittal’s Mont-Wright operation, although that company has alluded to some kind of future “restructuring.”

Cliffs’ exit from eastern Canada will “end the flawed expansion that has cost Cliffs and its shareholders billions of dollars,” president/CEO Lourenco Goncalves said in January. Handed the job after activist hedge fund Casablanca Capital gained control of Cliffs’ board, Goncalves takes a dim view of other operations as well.

“I can’t wait to get out of Australia,” the Sydney Morning Herald quoted him last month. “As soon as I get to the end of life of mine in Australia, I’m out of there … I can’t wait to get out of the seaborne trade and let the Australians take that horrible business on their own hands.”

Yet Bloom Lake, with “its high-quality ore,” still has hope, Goncalves suggested back in January. But “the potential investment is not achievable within a time frame acceptable to Cliffs.” Talks with Investissement Québec had already been underway for several months, he stated.

A government-run investment and financing agency, Investissement Québec’s subsidiary Ressources Québec has taken positions that include, for example, nearly $600,000 in an April private placement with Quest Rare Minerals TSX:QRM. A $3-million injection into Matamec Explorations TSXV:MAT last January brought Ressources Québec a 28% interest and joint venture partnership in the Kipawa rare earths deposit.

A much bigger Investissement Québec outlay was the $50-million stake in an estimated $118-million plan to increase Gaz Métro’s liquefied natural gas production. The government sees Plan Nord synergies, with the LNG fuelling transportation and operations in remote areas.

Quebec government investment is hardly new, although the previous Parti Québécois government shelved some resource-friendly policies.

I am not in a subsidy mode, I am in a partnership mode.—Quebec Economy Minister Jacques Daoust, quoted in
the Montreal Gazette

Now a branch of Ressources Québec but dating back to 1965, SOQUEM Inc has participated in over 350 Quebec exploration projects. Among its success stories is Renard, where Stornoway Diamond TSX:SWY plans 2017 production. In 2011 the company issued shares to acquire the 50% held by a SOQUEM subsidiary.

Outside of equity investments, Quebec last month announced $1.3 billion in government spending for Plan Nord over five years, part of an envisioned $50 billion to come from public and private sources for infrastructure and project development over 20 years.

It’s not a program to put off, the province maintains. As Energy and Natural Resources Minister Pierre Arcand told Canadian Press in December, Quebec “cannot wait until there is a mining boom and everything becomes uncontrollable.”

Quebec’s Bloom Lake investment, should it happen, could reach 20% of the operation, Bloomberg reported. “We’re trying to ensure the survival of the mine,” the news agency quoted Daoust. “If the last 20% is a problem, I will fix it.”

Last month the Montreal Gazette quoted him, “In a [typical] mining project, the bill is at least $1 billion. The problem you have in a mining project is financing the last 10%. If we invest $100 million in a mining project worth $1 billion we’re okay and we can close the deal…. We can go up to $200 million, but normally we should not invest more than 10 or 15%.”

Daoust added, “The kind of return we would get is the same as for any other shareholder. I am not in a subsidy mode, I am in a partnership mode.”

Government ownership of Bloom Lake’s rail link and port facilities, however, could lower the mine’s operating costs by as much as $20 a ton, he told Bloomberg.

Regardless, policies like these have helped raise the province’s once-faltering reputation. As a mining jurisdiction the province leaped from 18th place globally to number six on the Fraser Institute’s Investment Attractiveness Index, part of the annual survey of mining companies released in February.

Quebec’s policies aren’t without controversy, though. Following the April announcement of a scaled-down Plan Nord, the Parti Québécois opposition noted that Ressources Québec planned to guarantee a $100-million mortgage for the Nunavik nickel mine, held by Jilin Jien Nickel Industry Co. As reported by the Nunatsiaq News, the opposition pointed out that Quebec Premier Philippe Couillard formerly held a board position with project operator Canadian Royalties, which was acquired by Jilin Jien in 2010.

And there’s further controversy from another angle. In December Strateco Resources TSX:RSC launched a nearly $190-million lawsuit after Quebec refused to issue an exploration permit for the company’s Matoush uranium project. With a moratorium on uranium activity now in place, the province is considering an outright ban.

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