FMC Co-author’s Mining Royalty Regime Study With Global Application

by Dentons
Contact

This article was prepared by Carole Turcotte and Michel Brunet of FMC LLP

Fraser Milner Casgrain LLP, KPMG LLP and its subsidiary SECOR Inc. have released today a study presenting an analytical framework for evaluating the different mining royalty regimes which are being used worldwide. The authors hope the study will provide a framework for informed debate regarding mining royalty regimes best adapted to Quebec’s economic and mining circumstances. The quest for such determination has been provoked by an important public debate that is currently ongoing in Quebec as a result of the recent launch of the Plan Nord.

The study analyzes four royalty schemes for a standard Quebec iron mine or gold mine: i) profit-based royalties, ii) ad valorem royalties, iii) West Australian style of royalties and iv) hybrid royalties. The study concludes that no scheme is universally superior to the others and that it must be adapted to the territory. Given the fact that Quebec’s mining sector is relatively marginal on an international scale (representing less than 1% of global production), and that Quebec has high production costs based on the fact that its variable climate, its mining deposits are generally less concentrated and that it is at a great distance from the emerging Asian market, the study focuses on the importance for Quebec to remain competitive.

A profit-based royalty, the current royalty regime in Quebec (at a rate of 16 %), adjusts to the profitability of the mining project. Thus, when prices are low and mines become marginal or not profitable, this regime does not compound the problem. This is particularly important in regions where production costs are higher. Avoiding a supplementary burden in such a situation can help mines pass through a depressed mining cycle, without having to stop production. When prices are high and profits are up, such a profit-based scheme gives governments a larger proportion of the extracted value. However, the royalty amounts collected by the government will experience greater fluctuations and there is a risk that they may be nil for some mines during certain years. The ad valorem royalty facilitates the collection of more constant royalty levels under various price variations. However, this royalty adds a significant cost burden to the mining companies when the prices are low and the mining projects are less profitable. This, in turn, adds a significant amount of risk to the project and reduces its net present value relative to the same project subject to a profit-based royalty. An ad valorem royalty imposes the payment of royalties even when profits are weak or non-existent. This could lead to the accelerated closure of mines when prices are low and the postponement of potential projects. Ad valorem royalties are much less complex to put in place and are more common in developing countries, where fiscal administration is not well established. The hybrid royalty and the West Australian style of royalty combine, to varying degrees, the advantages and disadvantages of the previous two schemes.

The study concludes that high mining royalties do not necessarily translate into revenues as future investment may be compromised. The study recommends a regime be calibrated to optimize the benefits for Quebecers in the development of mining potential with a view not only to government revenues, but to impacts on investor decisions and regional characteristics of the sector.

Importantly, the study notes Quebec’s other mining investment assets are the quality of the business environment (political, legal and fiscal), the availability of trained professionals and workforce, the quality of its geological database and the potential of a very large territory which has not yet been explored.

For further information please see the attached press release and study, or contact a member of the FMC mining team.

http://www.newswire.ca/en/story/1014421/an-analytical-framework-for-evaluating-mining-royalty-regimes

http://www.secorgroup.com/files/pdf2/SECOR-KPMG-FMC_Les-redevances_minieres_au_Quebec_Version_finale.pdf

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:

Dentons
Contact
more
less

Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.