Last month, on April 8, the government proudly announced its new revamped Plan Nord. Premier Philippe Couillard’s project, though much less ambitious than that of Charest’s government, appears to be just as risky.
The government is intent on investing 2 billion dollars to build infrastructure in the North in order to make it easier for mining companies, usually foreign-owned, to gain access to the resources. By 2035, some $20b will have been invested by Hydro-Québec on new projects to reinvigorate the North’s economy. (It’s worth mentioning that details regarding these investments have not been made available.)
The profitability for taxpayers was already uncertain when metal prices were at a historic high in 2011. It therefore seems unlikely that the new Plan Nord will be cost-effective in a context in which metal prices have been declining for the last 4 years and that growth in countries like China is the slowest it has been for decades.
Considering that the return on royalties for 2015-2016 is projected at $65m and that mine site rehabilitation costs alone should reach $1.2b, it seems that going down the mining rabbit hole does not reap many benefits for the people of Quebec.
Does the government of Quebec have a choice?
Developing the mining extraction sector —despite the government’s pressing will to do so— is not profitable. Of course, some businesses do manage to reap profits, but we tend to forget that Quebec is a minor player on the world stage. At best, Quebec extractions represent around 0.6% of iron extractions worldwide and around 1% for gold (p. 5 of the PDF). In fact, we usually fall into the third or fourth quartile when compared to the rest of the world in terms of production costs. For foreign investors, there are a good number of places more profitable to develop than Quebec. A mining company would therefore simply choose to develop more easily accessible ore deposits somewhere where ore density per m3 and extraction costs offer a better deal than in Quebec.
If the government fails to insist on the need for local processing, taxpayers are shouldering the risk of developing a mining industry without any actual guarantee of future development. In that case, shouldn’t Quebec set aside the idea of paying out-of-pocket for foreign mining companies?
It should, unless it insists that foreign companies ensure local processing in exchange for the state’s gifts.
However, the government remains suspiciously silent regarding this issue. Why?
First, in Quebec, metal processing is given many different definitions. (Pre)primary processing, which consists in converting extracted metal into easily exportable pellets, is the most commonly found in the North of Quebec. It does not generate many jobs: processing needs to be further developed to sustain a regional economy. Quebec certainly has more work to do.
Of the 27.5 m tons of iron extracted in Quebec, only 11% is processed within the province according to a study published on behalf of the Board of Trade of Metropolitan Montreal (p. 4 in the PDF). It shows that each 10% increase in processing (primary, secondary, and tertiary) creates around 7,500 jobs and contributes to increasing the GDP by $758m (p. 6).
Why then does the state refrain from demanding that a processing plant be built within its borders when it lends $100m to a Chinese mining company? The benefits for regional development would be much greater, both for the population and for the return on investment. For example, Newfoundland-and-Labrador demanded that the mining company developing the Voisey’s Bay mine build a $13m research centre to create more jobs in the area. For their part, Ontario and the North-West Territories have requested that up to 10% of diamonds extracted on their land be set aside to be cut locally.
Why can’t Quebec be as demanding as its neighbours are?
This article was written by Bertrand Schepper, a researcher with IRIS—a Montreal-based progressive think tank.