Quebec and Ontario have made further strides in updating their mining regimes to reflect their respective needs, realities and political priorities.

In Quebec, the government recently took some major steps towards this goal by (1) tabling a proposal in May 2013 to change the mining royalty regime; (2) introducing Bill 43 on May 29, 2013, to replace the current Mining Act, which dates back to 1987; and (3) passing amendments, on July 23, 2013, to the Regulation to amend the Regulation respecting mineral substances other than petroleum, natural gas and brine in order to set new rules concerning the financial guarantees required for the restoration of mining sites.

In Ontario, the new and amended regulations under the Mining Act described in our September 2012 Legal update have since come into force, and Ontario has developed four policies relating to Aboriginal consultation that further clarify the government's expectations. Junior exploration companies have already experienced the effects and challenges of this new regime more significantly than majors or companies with advanced exploration projects.

This is a transition period for Ontario's regulatory regime—one that requires patience, goodwill, education and the on-going co-operation of all parties if the reforms are to achieve the positive results the government is hoping for. These include greater clarity, less confrontation, enhanced respect for existing Aboriginal and treaty rights, protection of sites of Aboriginal cultural significance and improved prosperity for First Nations communities.

Quebec

Mining royalties

In May, the government tabled its proposal to change the mining royalty regime to increase the return on mining royalties for Quebec. It decided to require all mining operators to pay a minimum mining royalty, called the minimum mining tax, and a progressive tax on mining profits. The minimum mining tax will be 1% of the total output at the shaft head below or equal to $80 million and 4% of each dollar in excess of the $80 million threshold. The minimum mining tax paid can be carried forward and applied against the tax on future mining profits. In 2011, half of the 20 mining companies operating mining fields in Quebec did not attain the profitability threshold at which mining tax is payable under the current regime. The new regime will subject them to a new tax burden.

The mining tax on profits will be 16% for mining companies with a profit margin between 0% and 35%, 22% for mining companies with a profit margin between 35% and 50%, and 28% for mining companies with a profit margin between 50% and 100%. According to government figures, the new mining royalty regime should allow the government to collect $376 million in revenues in 2015—$56 million more than the current mining tax regime would generate. When corporate income tax and the mining tax on profits are taken together, the new Quebec regime represents a combined taxation rate between 38.6% and 42.4% depending on a company's profit margin, compared to a rate of 32.5% in Ontario and 45.8% in Australia.

The new royalties are expected to come into effect on January 1, 2014.

A new Mining Act

Bill 43, tabled on May 29, 2013, is the third attempt to reform Quebec's mining legislation since 2010. Bill 43 contains most of the amendments proposed in Bill 79 and Bill 14 but also adds some new concepts, resulting in: (1) stronger recognition of sustainable development as the "perspective" for mining development in Quebec; (2) right of the minister to refuse or revoke a mining lease for surface mineral substances for "public interest" reasons; (3) requirement for mining operators to conduct a feasibility study for the processing of ore mined in Quebec; (4) a more robust penal sanctions regime based, in part, on the Environment Quality Act; (5) requirement to obtain a certificate of authorization under the Environment Quality Act before a mining lease is granted; (6) repeal of the power of expropriation for purposes of mining exploration; (7) increased protection of a family residence where it is acquired for mining purposes; (8) codification of the minister's duty to consult native communities, "having regard for the circumstances," for mining projects; (9) requirement to subject all mining projects to the environmental impact assessment and review procedure and provision of a financial guarantee covering 100% of the anticipated cost of rehabilitation; and (10) possibility for the minister to require the completion of a study on the maximization of economic spin-offs for Quebec.

The parliamentary commission of the National Assembly began hearings on Bill 43 at the end of August 2013. If the political parties in the National Assembly reach the consensus needed for it to pass, the Bill should become law in the fall of 2014 or no later than the spring of 2014.

A new regulation

Lastly, on July 23, 2013, the government enacted OC 838-2013, which amends the Regulation respecting mineral substances other than petroleum, natural gas and brine in order to set stricter requirements for mining site restoration and rehabilitation. With these regulatory amendments, several of the amendments set out in sections 176 to 196 of Bill 43 can be put into effect immediately.

Accordingly, the following changes will apply as of the effective date of this regulatory amendment, i.e. August 22, 2013: (1) the guarantee that a mining operator is required to submit will have to cover 100% of the anticipated costs of the rehabilitation plan, as compared to 70%, which is the requirement that applied until August 22, 2013; (2) the guarantee must be submitted in three instalments during the first three years; (3) the first instalment of the guarantee must be for 50% of the total amount of the guarantee and the second and third instalments, for 25% each; (4) operators whose rehabilitation plans were approved before August 22, 2013, are required to comply with the new rules regarding the financial guarantee, providing the first instalment within one year and the other instalments within three years; (5) the new financial guarantee requirements will apply to mining exploration operations as of revision of the already-approved restoration plan.

Comments

The three components of mining law reform in Quebec are intended to: (1) increase environmental responsibility of mining stakeholders; (2) ensure that mining development is in keeping with the principles of sustainable development; (3) increase government revenues from the development of mineral resources in Quebec; and (4) optimize the economic spin-offs from mining development for both local communities and Quebec as a whole. All these objectives, while laudable, will need to be adjusted in keeping with market realities. The challenge for the government is to make sure that Quebec remains attractive to individuals and businesses interested in mining development. It is important to remember that the marketplace for mining development is now global and capital is extremely mobile. Quebec is in ongoing competition with other provinces, states and countries that have mineral resources. Quebec, a democratic state with a dependable and competent legal system, offers undeniable advantages in terms of qualified labour, communication channels, political stability and legal certainty. In this respect, Quebec is attractive. However, it is not the only state that offers these benefits. The tax and regulatory regimes factor significantly in the decisions made by investors. It is important to remember that many mining exploration companies are under-capitalized and have access to limited financial resources. For Quebec to remain competitive, the government must therefore strike the right balance between its political objectives and the economic realities of the Quebec, Canadian and global mining markets.

Ontario

Mining Act Awareness Program: Effective November 1, 2012, General Regulation 45/11 requires anyone wishing to apply for or renew a prospector's licence to complete a free, on-line prospector's awareness program within 60 days of applying. Additionally, current licensees have until November 1, 2014, to complete the program. The program educates prospectors on the recent changes to the Mining Act and regulations.

Sites of Aboriginal Cultural Significance: Effective November 1, 2012, First Nations communities may apply to the Ministry of Northern Development and Mines (MNDM) to have sites of Aboriginal cultural significance withdrawn so that lands, mining rights or surface rights that are Crown property cannot be staked, prospected, sold or leased. The threshold size for such protection is 25 hectares or less if certain criteria are met. This is provided for under the Mining Act and General Regulation 45/11. The MNDM will consider whether there are other means to address a community's concerns, including terms and conditions in exploration permits. Mineral claims holders are entitled to receive notice of a proposal to withdraw or restrict surface rights and to make representations to the MNDM.

Exploration Plans and Exploration Permits: Effective April 1, 2013, and pursuant to Regulation 308/12, persons proposing to undertake certain low-impact, early exploration activities must submit an exploration plan to the MNDM before the activities are undertaken, although the plan is not approved by the MNDM, only circulated. Surface rights owners must also be notified. The MNDM will notify potentially affected First Nations, who will have 30 days to comment regarding any adverse effects the proposed activities may have on their existing or asserted Aboriginal and treaty rights. Unless the MNDM determines that an exploration permit is required, the proponent may not commence the activities until the 30 days have elapsed. The plan expires after two years.

Other early exploration activities having a higher impact require an exploration permit. Proponents may only proceed once the MNDM issues the permit. Surface rights owners must also be notified. The MNDM will notify potentially affected First Nations communities, who may comment on the application before a decision is made. Where a proponent consults with a First Nations community before applying for a permit, an Aboriginal consultation report must be included with the application. Within 50 days of MNDM circulating the permit application to potentially affected First Nations communities, the director of MNDM must decide whether to issue the permit and, if so, under what terms and conditions. However, the MNDM may "stop the clock" to allow for additional consultations if there are unresolved concerns. An independent third party may also be designated by the MNDM to hear specific Aboriginal consultation disputes.

Exploration permit applications are posted by MNDM on the Ontario Environmental registry, where the public is invited to submit comments within 30 days. If the application is approved, the permit is valid for three years, with the possibility of one three-year renewal. As at August 14, approximately 76 permit applications and 145 permit decisions appeared to have been posted on the registry since January (although some decisions relate to applications made in 2012).

Amendments to Assessment Work Regulation 6/96: Effective November 1, 2012, mining proponents may now include certain Aboriginal consultation costs as eligible for assessment work credits. Certain monetary payments may also be eligible.

Voluntary Rehabilitation and Closure Plans: Effective November 1, 2012, Aboriginal consultation is required prior to a proponent submitting a certified closure plan or closure plan amendment. Where a proponent applies to the MNDM for approval to voluntarily rehabilitate an existing mine hazard that it did not create or worsen, the director of MNDM must consider whether Aboriginal consultation, if required, has occurred in accordance with regulatory requirements.

New MNDM Policies: In addition to the Mining Act and regulatory changes, the MNDM has published four policies further clarifying the following areas relating to Aboriginal consultation and the government's expectations of mining companies and First Nations.

  • Aboriginal consultation
  • Dispute resolution
  • Assessment work credits
  • Sites of aboriginal cultural significance – withdrawals and surface rights restrictions

Additionally, the MNDM has developed provincial standards as part of the implementation of the graduated regulatory regime for early exploration and the exploration plans and permits regulations.

Commentary: The regulatory and policy developments in Ontario have been controversial, especially at a time of overall economic challenges and a slump in the minerals commodity markets, particularly for junior exploration companies. Some see the changes as a fundamental shift in mining and Aboriginal consultation that could result in higher costs, more bureaucracy, project delays and uncertainty. Others see it as a paradigm shift in the "free entry" system that has existed historically and a downloading by government of its consultation obligations. Still others view the changes as simply a codification in regulations of existing practices and court rulings on the duty to consult with Aboriginal Peoples. Certain First Nations in Ontario wanted the regulations delayed, claiming they had not been adequately consulted by the government. Others expressed concern about the potential inflexibility of the regulatory timelines, their lack of time and resources to engage in consultations and the risk that the government would approve exploration permits over their objections.

The Ontario Mining Act was clearly outdated and needed reform, not only to reconcile Ontario's laws with decisions of the Supreme Court of Canada respecting Aboriginal rights and consultation, but also to try to reduce the confrontations that have gained notoriety over the last several years between mining proponents and First Nations communities. The current concerns and issues faced by mining companies, their investors and First Nations communities with respect to these reforms will likely remain for a while until all parties become more experienced with this new business environment.

The success of Ontario's mining industry and its ranking as one of the best places for large and small mining companies to invest and prosper will depend in part on how parties work together under these new regulations. One can only hope for greater harmony and a balancing of the needs of the mining industry against the rights of First Nations people.

Norton Rose Fulbright Canada LLP

Norton Rose Fulbright is a global legal practice. We provide the world's pre-eminent corporations and financial institutions with a full business law service. We have more than 3800 lawyers based in over 50 cities across Europe, the United States, Canada, Latin America, Asia, Australia, Africa, the Middle East and Central Asia.

Recognized for our industry focus, we are strong across all the key industry sectors: financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and life sciences and healthcare.

Wherever we are, we operate in accordance with our global business principles of quality, unity and integrity. We aim to provide the highest possible standard of legal service in each of our offices and to maintain that level of quality at every point of contact.

Norton Rose Fulbright LLP, Norton Rose Fulbright Australia, Norton Rose Fulbright Canada LLP, Norton Rose Fulbright South Africa (incorporated as Deneys Reitz Inc) and Fulbright & Jaworski LLP, each of which is a separate legal entity, are members ('the Norton Rose Fulbright members') of Norton Rose Fulbright Verein, a Swiss Verein. Norton Rose Fulbright Verein helps coordinate the activities of the Norton Rose Fulbright members but does not itself provide legal services to clients.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.