Quebec is ramping up efforts to develop its northern region by investing in infrastructure, seeking to attract resource companies and boost royalties from increased output of minerals and hydrocarbons, Finance Minister Raymond Bachand said.
Canada’s second-most populous province will earmark C$1 billion ($1 billion) for investments in mining and hydrocarbon development projects over the next five years, twice the amount allocated in last year’s budget, Bachand said. Quebec will set up two funds dedicated to government investments in natural resources, the minister said.
“Getting the most out of our natural resources is probably at the heart of this budget,” Bachand told reporters in the provincial capital, Quebec City. “We’re controlling our public finances and building our future.”
ArcelorMittal (MT), Rio Tinto Group and Goldcorp Inc. (GG) are among commodities producers that announced expansion projects in Quebec’s northernmost part last year. Premier Jean Charest unveiled the so-called Plan Nord on May 9, promising C$80 billion of government and company investments by 2036 to tap mining and energy resources in an area twice the size of France and 10 times the size of New York state.
Quebec will probably account for half of all mining investment in Canada this year, National Bank of Canada (NA) said in a March 13 report. The performance will probably boost gross domestic product by more than 1 percentage point, Stefane Marion, chief economist at the bank, said in the report.
The first of the new funds, called Ressources Quebec, will take equity interests in “promising” mining projects, Bachand said. Ressources Quebec will be a unit of state-owned Investissement Quebec and start with assets of about C$235 million, Bachand said. When “fully implemented,” Ressources Quebec will manage more than C$1.2 billion in assets, he said.
Another fund, Capital Mines Hydrocarbures, will focus on government investments in the province’s underground resources.
Quebec will negotiate options on equity stakes in mining development in exchange for government support, Bachand said. The size of the interest “will depend on the value of the benefit granted and the level of risk involved,” he said.
“The mining and hydrocarbon industries can be lucrative, but the risk is also huge,” Bachand said in the text of his speech to lawmakers in the provincial legislature. “We will not gamble with the money of Quebeckers. The equity interest strategy we are putting forward allows for prudent risk management.”
Bachand also said the province will immediately start auctioning oil and gas licenses, matching systems already in place in provinces such as Alberta and Newfoundland and Labrador. No new licenses will be issued until auction mechanisms are in place, Bachand said. Fees associated with existing licenses will climb from C$1 million annually to C$5 million in 2014-15, he said.
Royalties from mining will amount to C$365 million in the fiscal year ending March 31, Bachand said. Quebec expects to receive C$4 billion in mining royalties during the next decade, 14 times more than in the prior 10 years, he said. Royalties from all natural resources will amount to C$1.2 billion this year, almost double the average of C$681 million from 2006 to 2010.
Quebec will also cut refundable tax credits for mining and oil and gas exploration companies by about one-quarter amid a boom in the industry.
“The current rush to engage in exploration in Quebec leads us to believe that the prospects for gain mean these tax benefits are not as important as before,” Bachand said.
Bachand also highlighted various infrastructure projects that may help lure companies to northern Quebec. The government will pay for part of a feasibility study by Montreal-based natural gas distributor Gaz Métro (VNR) on a proposed C$750 million gas pipeline to the province’s Cote-Nord region. Quebec’s contribution will be temporary and repayable, Bachand said.
Hydro-Quebec (HYQU), the provincially owned electric utility, will begin studies this year on extending its power transmission grid to the Nunavik region. The Montreal-based company will invest as much as C$10 million on the project in 2012-13, Bachand said.
Bachand also said that Caisse de Depot et Placement du Quebec, the provincially owned pension-fund manager, is working with Montreal-based Canadian National Railway Co. (CNR) on a project to build a rail line linking the port town of Sept-Iles and the Labrador Trough region.
The proposed 800-kilometer (500-mile) long line would probably cost about C$5 billion, with Canadian National contributing two-thirds of the amount, Benoit Poirier, an analyst at Desjardins Securities in Montreal, said today in a note to investors. The link could open as soon as 2017, helping Canadian National to quadruple iron ore shipments and add about C$1.3 billion in annual revenue, Poirier said, citing estimates by the company.
“This would be enormous growth opportunity for CN,” Poirier said in a telephone interview. “They are very excited about the project.”
The budget details give “clarity” to the earlier Plan Nord announcements, said Francois Dupuis, chief economist at Mouvement Desjardins, Canada’s largest credit union. “They are fine-tuning the framework for resources,” Dupuis said. “This is a very long-term project.”
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