The PQ government of Quebec has changed its royalty regime for mining companies. It is hiking royalty rates in a soft commodities market, on the heels of a $700M reduction in planned exploration expenditures, a mine closure and a raft of projects ‘on hold’.
Royalties on company profits will be set at a basic rate of 16% but will increase based on a company’s profit margins or the government can charge a 1% tax on the first $80 million, depending on the value of the metal coming out of the ground, which can increase to 4% after the initial $80 million. Québec went through a royalty hike in 2010, from 12% to 16% under the Jean Charest-led Liberal government at the time, which makes this the second substantial royalty jump in three years.
Québec’s standing in the eye of the mining world has taken a bit of a fall in recent years. The Fraser Institute, an independent non-partisan research and educational organization based in Canada, releases an annual survey of the best mining jurisdictions in the world. Québec ranked first from 2007 to 2010 but has now fallen out of the top 10 in the 2013 survey. This was before any royalty hike was taken into account.
The royalty changes will increase government revenues by $73-200 M per annum according to M.Marceau, Quebec’s Finance Minister.
It remains to be seen whether a tax increase in a weak economy yields additional revenue (or jobs) for Quebecers.