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  • Federal Budget 2022: Good News for Mining Exploration Compagnies!

    On April 7, 2022, Finance Minister Chrystia Freeland tabled the federal government’s new budget for 2022. This budget includes several tax measures relevant to the mining industry in Canada. The Canadian federal government intends to provide $3.8 billion over eight years to implement Canada’s first critical minerals strategy. One of the methods used to implement this new strategy and stimulate exploration is an investment vehicle well known to the mining industry: flow-through shares. The 2022 budget proposes to create a new 30% Critical Mineral Exploration Tax Credit (CMETC) for certain specified minerals. Specified minerals that would be eligible for the new CMETC are: copper, nickel, lithium, cobalt, graphite, rare earth elements, scandium, titanium, gallium, vanadium, tellurium, magnesium, zinc, platinum group metals and uranium. As for the regular mineral exploration tax credit, the exploration expenses must have been incurred in Canada. The renunciation of expenses must also have been made under flow-through share agreements entered into after budget day and before March 31, 2027. It is important to note that there will be no cumulation of tax credits. Eligible expenditures will not be eligible for both the proposed new CMETC and the 15% regular mineral exploration tax credit (METC). In order for exploration expenses to qualify for the CMETC, a qualified person (as defined in National Instrument 43–101 issued by the Canadian Securities Administrators) will further have to certify that the expenses renounced will be incurred in the course of an exploration project for specified minerals. On this point, the measure seems to insert a new legal test of “reasonable expectation” that the minerals targeted by the exploration are “primarily specified minerals”. No details have yet been issued on the mechanics of applying this test.  However, if the qualified person is unable to demonstrate that there is a reasonable expectation that the minerals targeted by the exploration project are predominantly specified minerals, the related exploration expenses would not be eligible for the CMETC and consequently, any credit granted for ineligible expenses would be recouped from the flow-through share holder who received the credit. Pending the tabling of a more detailed legislative version, careful attention and planning will therefore be required for new flow-through share financings to ensure that they meet the legal criteria for this new tax credit. Our team of professionals in securities, mining law and taxation is available to answer all your questions regarding this new measure and to assist you in the implementation of a successful flow-through financing: Josianne Beaudry René Branchaud Ali El Haskouri Charles-Hugo Gagné Éric Gélinas Sébastien Vézina

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  • New environmental authorization scheme: how does this affect mining companies?

    A new environmental authorization scheme, which is intended to be a simplified version, was implemented under the Environmental Quality Act (“EQA”) and has been in effect since March 23, 2018. How does this new scheme affect mining companies? Is the authorization scheme truly simplified? What about the right to continue unauthorized operations that could benefit certain mining companies (also called an acquired right)? Under the new EQA authorization scheme, mining activities will be subject to different schemes depending on the risk they present. While the majority of activities are subject to ministerial authorization1, others may: benefit from exemptions be subject to the new scheme of declaring compliance be subject to the environmental impact assessment and review procedure if they present an elevated risk. The implementation of the EQA’s new environmental authorization scheme involves a review of the regulations adopted pursuant to this act. This bulletin refers to the Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters (“Draft Regulation”). This Draft Regulation has been published, but it is not currently in its final form and may be modified before it comes into force.2 Consequently, a regulatory watch is required.3 What authorizations are mining companies subject to? Depending on the nature of the activity, the applicable scheme ranges from exemption to environmental impact assessment and review procedure. 4 The general environmental authorization scheme Subject mining activities Article 22 of the EQA lists several activities whose implementation requires prior authorization from the Minister.  Mining activities are not part of this list. However, the 10th item of the list is “any other activity determined by government regulation.” At present, the Draft Regulation states that “any mining activity shall be subject to authorization.”5  This leaves little room for interpretation. Thus, with the exception of the specific cases currently provided for in the Draft Regulation, any mining activity requires an authorization from the Minister. Content of the authorization request It should be noted that in addition to the documents listed in the EQA, an authorization request for mining activity may have to be accompanied by the additional information and documents listed in the Draft Regulation.6 In addition, from now on, any documents submitted in support of an authorization request are considered as being public. It is up to the person submitting the request to specify whether certain documents include a confidential industrial or commercial secret. The decision as to the public nature rests with the Minister who notifies the applicant for authorization. This decision is legally binding upon the expiration of a period of 15 days following the transmission of the notice. Once this period has elapsed, the documents are made public, hence the importance of calling on the courts quickly if it is necessary to contest the Minister’s decision.7 Right to pursue an activity without environmental authorization In its former version, the general environmental authorization scheme in Article 22 of the EQA prohibited “undertaking the operation of any industry, the performance of an activity or use of an industrial process [...]” without having obtained a prior certificate of authorization. Because of the word “undertaking,” the case law recognized the possibility of pursuing an activity without authorization when it had been undertaken before the entry into force of the EQA on December 21, 1972. In its new version, Article 22 of the EQA no longer speaks of the need to obtain an authorization to undertake but rather to carry out an activity. This demonstrates the legislator’s willingness to no longer allow an activity to continue without environmental authorization. However, certain transitional provisions specifically provide that an activity may be pursued without authorization, providing that it must then rely on the wording of the government regulation on the issue to make sure8. At present, the text of the Draft Regulation does not support the conclusion that mining companies could benefit from a right to pursue an activity without authorization. Exemption scheme Certain mining activities considered to be of little risk to the environment are completely excluded from the obligation to obtain prior environmental authorization. The Draft Regulation currently provides that the following are exempt: milestone marking, geophysical, geological, or geochemical surveys, drilling work (unless performed in wetlands and water environments9) stripping and excavation work under certain conditions (unless they are carried out in wetlands and water environments or within 30 meters of such environments). The statement of compliance scheme The statement of compliance scheme allows for proceeding by transmitting to the Minister all of the documents required by the EQA and the applicable regulatory provisions by stating compliance to them.  In this case, if thirty days after the transmission of the documents, no follow-up has been made with the Declarant, he or she may begin the activity concerned. The Draft Regulation provides that drilling work carried out in the wetlands and water environments as a part of a project searching for mineral substances would be, under certain conditions, eligible for the statement of compliance.10 It should be noted that special provisions may be applied depending on the environment in which the work is carried out. Certain conditions are specific to work carried out in a pond, marsh, swamp or peatland10, and others are specific to work carried out on a lake or shore or in a lake or river12. The compliance statement scheme requires the production of extensive and professionally signed studies. If the processing time is shortened, the declarant’s task remains complicated. The environmental impact assessment and review procedure scheme Certain mining activities are subject to the environmental impact assessment and review procedure pursuant to the Regulation on the assessment and review of the environmental impact of certain projects13currently in force.  The purpose of this bulletin is not to discuss the procedure followed under this more complicated scheme that involves the intervention of the Bureau d’audiences publiques sur l’environnement [Bureau of Public Hearings on the Environment] (“BAPE”).14 The following mining activities are subject to this review procedure: The establishment of a uranium or rare earth mine; The establishment of a mine with a maximum daily metal-bearing ore mining capacity of 2000 metric tons or more; The establishment of a mine with a maximum daily ore (other than metal-bearing) mining capacity of 500 metric tons or more; Any increase in the daily maximum mining capacity of a mine thus making it reach or exceed the thresholds identified above;15 The establishment of a mine within an urban area identified in the construction and development plan of a RCM or in an Indian reservation or within 1000 meters of such an area or reservation; Any expansion of 50% or more of the operating area of a mine in certain specific cases identified in the regulation; After the BAPE’s work, the Minister makes a recommendation to the government as to the authorization requested.  Ultimately, it is the government that decides whether or not to issue the authorization. 16 Changes to the environmental authorization scheme are major. Mining companies have every interest in taking a closer look at it and monitoring the entry into force of the regulations that allow the implementation of this scheme in order to continue their operations in Québec legally.   Article 22 EQA.    The Minister of Sustainable Development, the Environment, and the Fight against Climate Change, Ms. Isabelle Melançon, mandated Ms. Suzanne Giguère and Mr. Jean Pronovost to give their opinion on the regulatory approach adopted by the Ministry. Here is the link to the SDEFCC press release: On July 19, a press release was issued by the SDEFCC announcing the intention of the Minister, Isabelle Melançon, to postpone the coming into force of the draft regulations considering the findings of Suzanne Giguère and Jean Pronovost. Here is a link to the SDEFCC press release: It should be noted that at the time of writing, most of the government regulations implementing the new environmental authorization scheme have been the subject of proposals published in the Official Gazette of Québec. These regulations, however, are not yet known in their final versions. The Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 1 (other activities subject to prior authorization), Section 2, Article 4. Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Article 38. The Regulation on certain transitional measures for the application of the Act to amend the Environment Quality Act to modernize the environmental authorization scheme and to amend other legislative provisions, in particular to reform the governance of the Green Fund currently provides, in a transitional manner, the documents that must be attached to a request for authorization. It should be noted that activities already in progress on March 23, 2018 and for which no environmental authorization was required pursuant to the EQA and that would now be subject to environmental authorization according to Article 22 of the EQA, could be continued without further formalities subject to any special provisions that may be provided for by a government regulation (Art. 290 of the Act to amend the Environment Quality Act to modernize the environmental authorization scheme and to amend other legislative provisions, in particular to reform the governance of the Green Fund (Bill 102, 2017, Chapter 4). It should be noted that the EQA includes a broad definition of wetlands and water environments. These environments include lakes, rivers, shorelines and flood plains of lakes and rivers, ponds, marshes, swamps and peatlands (Article 46.0.2 EQA). The Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 2 (activities subject to a statement of compliance), Section 8, Article 19 et seq. Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 2, Section 8, Article 21 Draft Regulation on Ministerial Authorization and the Statement of Compliance in Environmental Matters, Appendix 2, Section 8, Article 22 Decree 287-2018, March 21, 2018 Articles 31.1 et seq. EQA It should be noted that this does not apply to a mine existing as of March 23, 2018. Other standards apply to these mines for which any plan to increase the daily mining capacity by 50% or more is subject to the impact review procedure if this increase exceeds the applicable mining thresholds depending on the nature of the mined material. Article 31.5 EQA  

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  • Latest developments in the Canadian infrastructure market / The Canada-Europe Free Trade Agreement: impacts on the infrastructure industry / Biomethanization: a fast-growing market in Québec

    TABLE OF CONTENTS Latest developments in the Canadian market Fengate acquires a solar project portfolio from Canadian Solar TerraForm Power increases the financing of its Canadian solar power portfolio SaskPower launches a call for tenders for 200 MW of wind energy Boralex closes the financing of the Port Ryerse wind farm in Ontario CPDQ posts an 11 .1% return on its infrastructure sector in 2016 Infrastructure Ontario appoints a new CEO SNC-Lavalin intends to launch a new infrastructure fund in 2017 InstarAGF raised $549M for its Essential Infrastructure Fund Bombardier and Metrolinx move toward a trial The Government of Québec confirms its support for the CDPQ’s REM project The future Canada Infrastructure Bank: a role which remains to be clarified Teacher’s former CEO to advise the Canada Infrastructure Bank Metrolinx CEO becomes an advisor to the Canada Infrastructure Bank British Columbia Budget 2017 provides for record levels of infrastructure investments Road programming 2017-2018: more than $4 .6B to be invested in the Québec road infrastructure network Alberta Budget 2017 increases infrastructure investments Québec Budget 2017 provides for massive investments in public transportation Newfoundland and Labrador Budget 2017 introduces a five-year infrastructure investment plan Innergex announces the commissioning of the 81 .4 MW Upper Lillooet River hydroelectric power plant Manitoba Budget 2017 steps up its commitment to public-private partnerships The Canada-Europe Free Trade Agreement: Impacts on the infrastructure industry Biomethanization: a fast-growing market in Québec Latest developments in the Canadian market Fengate acquires a solar project portfolio from Canadian Solar On February 1, 2017, Fengate closed the acquisition of three solar projects from Canadian Solar . The three projects, located in Sault Ste . Marie, in Ontario, represent a total capacity of 59 .8 MW . This acquisition constitutes Fengate’s largest power investment to date. The three projects each have a power purchase agreement with the Independent Electricity System Operator (IESO) with an average remaining life of approximately 15 years . These projects will continue to the operated by Canadian Solar under a long-term operating and maintenance agreement with Fengate. TerraForm Power increases the financing of its Canadian solar power portfolio On March 2, 2017, TerraForm Power announced that it increased by $114M the amount of financing dedicated to four Canadian solar projects . The group of projects includes the SunE Perpetual Lindsay (15 .5 MW), Marsh Hill (18 .5 MW), Woodville (12 .6 MW) and Sandringham (13 .1 MW) parks, which all have a 20-year power purchase agreement with IESO. Following this increase, the total financing amount for this group of projects is $234M while the initial loan was $120M . The financing term is seven years. Deutsche Bank and CIBC were joint bookrunners and joint lead arrangers for the transaction . Commonwealth Bank of Australia, Siemens Financial, the Fédération des caisses Desjardins du Québec and the Laurentian Bank are also members of the banking syndicate. SaskPower launches a call for tenders for 200 MW of wind energy On February 7, 2017, SaskPower launched a call for tenders for 200 MW of wind energy intended for independent producers able to develop, finance, build, own and operate wind power projects in Saskatchewan . The projects must be operational by April 30, 2020, in accordance with the terms of the call for tenders. Bids are expected by May 2, 2017 . SaskPower will assess the proposals based on criteria that include the proposed price, community involvement, participation of aboriginal groups, environmental aspects, etc . SaskPower intends to grant up to two 25-year power purchase contracts. Boralex closes the financing of the Port Ryerse wind farm in Ontario On February 22, 2017, Boralex announced the closing of a $33 .4M post- construction financing for the 10 MW Port Ryerse wind farm, located on privately owned lands east of the hamlet of Port Ryerse in Norfolk County, Ontario . This is a long-term financing provided by the DZ Bank AG Deutsche Zentral-Genossenschaftsbank (New York Branch) . The financing consists of a $2 .0M letter of credit facility and a long-term tranche of $31 .4M, the latter to be amortized over a period of 18 years. Note that the project is covered by a 20-year power purchase agreement with Ontario’s Independent Electricity System Operator (IESO) and that Boralex is now the sole holder of the project . CPDQ posts an 11.1% return on its infrastructure sector in 2016 The Caisse de dépôt et placement du Québec (“CDPQ”) posted an 11 .1% return on its infrastructure segment over calendar year 2016, according to an announcement made on February 24, 2017 . This same segment brought a 6 .6% return in 2015. The amount CDPQ invested in the infrastructure sector was $14 .6B in 2016 against $13B in 2015 . The pension fund invested Cdn .$1 .4B in infrastructure projects in 2016, against Cdn .$705M in 2015 . The pension fund holds 25 infrastructure assets worldwide, allocated between Australasia (10), North America (7), Europe (7) and Latin America (1) according to InfraAmericas. Transport and social infrastructures make up half of the infrastructure portfolio of CDPQ . The other half includes energy and health care. Infrastructure Ontario appoints a new CEO Mr. Ehren Cory has been appointed CEO of Infrastructure Ontario (IO) on February 2, 2017 for a 3-year term which should therefore terminate on February 1, 2020. Mr. Cory replaces the agency’s interim president and CEO, Toni Rossi. He joined IO in 2012 and recently held the position of president of the project delivery division . Prior to IO, he was a partner at McKinsey & Company, where he was a leader in the Infrastructure and Public Sector practices. SNC-Lavalin intends to launch a new infrastructure fund in 2017 At the announcement of the 2016 Q4 financial results, SNC-Lavalin’s management confirmed that they intend to finalize a new fund in 2017, which is intended for the Group’s North American operating infrastructure assets. The net book value of SNC’s investment portfolio is $417M . Its average fair market value as of March 1, 2017 was $4B . The assets include light trains, hospitals and highways worldwide . But Highway 407 will not be included in the fund. SNC seeks to entice passive investors in the fund, particularly insurance companies and small pension funds interested in investing in assets without participating in operations . InstarAGF raised $549M for its Essential Infrastructure Fund InstarAGF Essential Infrastructure Fund (“EIF”) obtained $549M in commitments to date (Source: InfraAmericas). The fund, concentrated on North America, has set a $750M target, with a maximum of $850M . The final closing of the fund is expected to occur during the 2017 fiscal year . The term of the fund is 15 years and includes a 2-year extension period . The objective is an internal return rate of between 9% and 14%. The target industries include transport, social infrastructures, renewable energies, power generation and public services . The fund seeks projects offering protection against market shifts, such as longterm contracts, concession contracts or a specific regulatory regime. Approximately 40% of the fund has been invested since January 2015 . The current portfolio of InstarAGF includes the Billy Bishop airport terminal, two wind projects totalling 30 MW in British Columbia and the Steel Reef Mainstream company, based in Calgary. Bombardier and Metrolinx move toward a trial The date of the trial of Bombardier and Metrolinx concerning the supply of light rail vehicles for the Eglinton and Finch West LRT projects should be known soon, at the conclusion of the hearings before the Superior Court of Ontario. Metrolinx blames Bombardier for the delays in delivering the 182 vehicles under the contract . For its part, Bombardier maintains that the delays are due to Metrolinx repeatedly modifying its requirements . The dispute already resulted in the postponement of the deadline for filing proposals for the $1B Finch West LRT project. The three preselected teams in the Finch West LRT project have been invited to include the supply of vehicles in their proposals, which paves the way to an alternate solution to that of Bombardier. If the supply and delivery model of the Finch West LRT project may be still modified, such is no longer the case for the Eglinton LRT contract, as the financial closing of the $5B project occurred in July 2015. The Government of Québec confirms its support for the CDPQ’s REM project According to a press release published on March 28, 2017 by the Caisse de dépôt et placement du Québec (“CDPQ”), the Government of Québec intends to invest $1 .28B in the Réseau électrique métropolitain (“REM”) project in Montréal. For its part, the CDPQ should invest $2 .67B in the project, in parallel with a $2 .28B contribution from the federal government, in respect of which discussions are still ongoing. The CDPQ’s net interest in the project should eventually be 51%, while the provincial and federal governments will each hold a 24 .5% interest. The CDPQ anticipates a return rate which should be between 8% and 9% for the project, which is consistent with the general return objective of the CDPQ, which is 6%. The federal and provincial governments will receive dividends when the 8% return rate for the project is reached . The dividends will then be paid to the minority shareholders until they reach their minimum 3 .7% target return rate . The 3 .7% target rate corresponds to the average borrowing cost of the entire debt of the Government of Québec . Once the minority shareholders reach the target return rate, the dividends will be paid in accordance with the ownership percentages. The project, which is considered to be a public-public partnership, involves the acquisition of a light 67 km railway system including 24 stations and linking downtown Montréal with the South Shore, the West Island, the North Shore and the Pierre Elliott Trudeau International Airport . The estimated cost of the REM is between $0 .69 and $0 .72 per passenger/km. The future Canada Infrastructure Bank: a role which remains to be clarified The Canadian Government recently shed some light on the creation of the Canada Infrastructure Bank (“CIB”), but many stakeholders still wonder about the functioning of the future institution and some have concerns about the consequences on the market. On March 22, 2017 in Ottawa, at the Parliament session on the budget, the Minister of Finance, Bill Morneau, stated that the CIB would commence operations by the end of 2017. The budget also referred to the status of key public transportation project which would be in the sights of the future bank, such as phase 2 of the Ottawa LRT, the Calgary Green LRT, Ontario’s RER program and Vancouver’s Millennium Line Broadway Extension, without, however, promising financing from the CIB. The launch of the process for appointing the CEO and chairman of the board of the bank has been announced. Some stakeholders in the industry wonder about the fact that the CIB could adopt a model similar to that of the CDPQ with Montréal’s Réseau électrique métropolitain (“REM”) project, which is called a “public-public” project. Moreover, many note the fact that there already is an increase of private financing and not enough investment opportunities in the infrastructure market, which calls into question the usefulness of a new player in this area. However, some stakeholders talk about major projects which would bring about broader economic benefits to the country and could justify subsidies from the bank in the form of equity investments or nonrefundable contributions. The government reiterated that it does not intend for the CIB to compete with existing provincial agencies such as IO, Saskbuilds, Partnerships BC or the Société québécoise des infrastructures. Teacher’s former CEO to advise the Canada Infrastructure Bank Jim Leech, former CEO of the Ontario Teachers’ Pension Plan (“OTPP”) will be a special advisor for the launch of the CIB. He will be responsible for setting up an implementation team, negotiating agreements with stakeholders, providing strategic advice on investments and, more directly, for specific projects across Canada. The CIB anticipates to deliver projects worth in excess of $200B over 10 years while minimizing the use of public money . The capital of the bank, that is, $35B over 10 years, would add up to the private financing provided by institutional investors in order to propose equity financings or subordinated loans in chosen projects. The federal government already courted some of the largest public pension funds of Canada, as well as foreign investors . The government wishes to attract investments of as much as four or five dollars in private capital for every tax dollar invested in new projects. In his economic statement in the fall of 2016, the government maintained that increased participation of institutional capital in infrastructures constitutes a priority. Jim Leech became president and CEO of the OTPP after having worked within the organization for six years . He retired from the fund on December 31, 2013. Metrolinx CEO becomes an advisor to the Canada Infrastructure Bank Bruce McCuaig, the CEO of Metrolinx, accepted a new position with the federal government, at the Privy Council Office, to support the launch of the CIB. Mr . McCuaig will be an executive advisor and will support the CIB special advisor Jim Leech – who was also recently appointed – as part of the process of launching the bank. Bruce McCuaig joined Metrolinx in 2010 . Under his leadership, the agency developed projects worth $8B financed by the private sector, notably the Eglinton Crosstown LRT, the new East Rail maintenance facility, Finch West LRT, Hurontario LRT and Hamilton LRT. Mr . McCuaig will be temporarily replaced by Mr . John Jensen, currently Chief Capital Officer with Metrolinx, pending the recruitment of a permanent successor. British Columbia Budget 2017 provides for record levels of infrastructure investments The 2017-2018 budget of British Columbia provides for $24 .5B investments over the next three fiscal years, that is a $1 .7B increase for the current fiscal year . This is the fifth balanced budget tabled by the liberal government, which also reaffirmed its commitment to public-private partnerships. This budget in investments and PPP projects include the following: $2.7B for hospital projects; $2.6B for post-secondary establishment infrastructure; $2B for the maintenance, replacement, renovation or expansion of educational institutions for students from kindergarten to 12th grade; $1.4B by the departments for the construction of infrastructures such as courthouses, correctional centres, office buildings and information systems; $7B for investments in transportation, including the project for the replacement of the George Massey tunnel (ongoing call for tenders). Road programming 2017-2018: more than $4.6B to be invested in the Québec road infrastructure network The Government of Québec will invest in excess of $4 .6B in the Québec road network between 2017 and 2019 in order to undertake, continue or complete 2,062 road construction projects throughout Québec and create and maintain more than 31,000 jobs. On March 3, 2017, in Montréal, the Minister of Transport, Sustainable Mobility and Transport Electrification, Mr . Laurent Lessard, announced the road programming for the next two years with the Minister responsible for the Montréal region, Mr. Martin Coiteux. The $4 .6B to be invested over the next two years are allocated as follows, based on the main axes of intervention established by the Ministère: $2.1B will be allocated to structures which the MTMDET is responsible for, and $252.6M will be allocated to the municipal network structure; An amount of over $1.2B will be allocated to pavement; $626.9M will be allocated to network improvement; $463.7M will be allocated to network development. From these amounts, $1.3B will be used to complete projects related in whole or in part to road safety improvement. Moreover, 90% of the amounts invested will be used to maintain assets. Alberta Budget 2017 increases infrastructure investments The 2017 budget of Alberta increases by $1.4B the infrastructure investment in addition to what had been announced in the 2016 budget, for a total of $29 .5B over the four coming years. The main areas of investment include: $7.6B in municipal infrastructure support; $4.7B for capital maintenance and renewal; $4.5B for health infrastructure; $3.8B for climate change and environmental sustainability; $2.6B for schools, including $500M for new school projects over the next four years and an additional $488M for future school projects beginning in 2018-2019; $3.1B for roads and bridges; $100M to support Albertans living on reserves who do not have reliable access to clean drinking water. Alberta’s last PPP project, the Southwest Calgary Ring road, worth $1.42B, is currently under construction and should be open to traffic in October 2021. Québec Budget 2017 provides for massive investments in public transportation The 2017 budget of Québec provides for infrastructure expenses of $91.1B over 10 years, that is a $2.4B increase over last year budget. Significant investments will be made in public transportation and in restructuring its management in the Montréal area. An additional $1.5B will be invested in public transportation for the following major initiatives: Réseau électrique métropolitain (REM) The Government of Québec intends to invest $1.28B in the Réseau électrique métropolitain (REM) project in Montréal. This contribution will be added to the $2 .67B of CPDQ and that of the federal government in the amount of $2 .28B which currently is under discussions . Calls for proposals are ongoing for the construction, rolling stock and maintenance aspects. The proposals must be submitted by the summer of 2017. Metro blue line The project includes a 5.5 km extension of the blue line toward Anjou, in the northeastern part of Montréal. The work should begin in 2021 and the investment will be described in the 2017-2027 Infrastructure Plan. Autorité régionale de transport métropolitain (ARTM) The government will create the ARTM in order to centralize the planning and delivery of public transportation in the Montréal area. This organization will be managed by the Montréal Metropolitan Community (MMC) . Its financing over five years will include $399M to [TRANSLATION] “maintain excellent financial solidity” and $587.7M for its role in the REM project. Complementary improvements to public transportation The government invests an additional amount of $333M over five years (in addition to the current amount of $1.2B) in the improvements to public transportation, adapted transportation and regional public transportation services across Québec. Newfoundland and Labrador Budget 2017 introduces a five-year infrastructure investment plan Newfoundland and Labrador budget 2017 provides for a $3B investment in infrastructure over the next five years . The government also announced that it intends to analyze all the major infrastructure projects to determine their eligibility for public-private partnerships. The major investments provided for in the infrastructure plan include the following: $330.9M for major health care projects; $53.8M for the construction of new schools and related repair and maintenance work; $44.7M for post-secondary establishments; $461.1M for municipal infrastructure, in partnership with the federal government; $372.2M for transportation infrastructure; $86.5M for the repair, maintenance and modernization of affordable housing units. Furthermore, the plan emphasizes the interest for partnerships with the private sector which stimulate innovation and allow for benefiting from the best market practices in managing operations. Innergex announces the commissioning of the 81.4 MW Upper Lillooet River hydroelectric power plant Innergex Renewable Energy Inc. (TSX: INE) has begun commercial operation of the 81.4 MW Upper Lillooet River run-of-river hydroelectric facility located in British Columbia. Innergex owns a 66.7% interest in the hydro facility and Ledcor Power Group Ltd. owns the remaining 33.3%. This is the largest hydroelectric power plant built by Innergex to this day. The facility is located on crown land, approximately 40 km north of the Village of Pemberton, in the Sea-to-Sky district of British Columbia. Construction began in October 2013 and was completed in March 2017. The facility is part of the Upper Lillooet River Hydro Project which includes two run-of-river clean energy generation facilities located in the Pemberton Valley: Upper Lillooet River (81.4 MW) and Boulder Creek (25.3 MW). On March 17, 2015, the Corporation announced the closing of $491.6M non-recourse construction and term project financing for both these projects. The commissioning of the Boulder Creek hydroelectric facility is expected in the second quarter of 2017. The Upper Lillooet River facility’s average annual production is estimated to reach 334,000 MWh, enough to power around 31,850 British Columbia households. All of the electricity it produces is covered by a 40-year fixed-price power purchase agreement with BC Hydro, granted in the context of the 2008 call for tenders for clean energy, which provides for an annual adjustment to the selling price based on a portion of the Consumer Price Index. Manitoba Budget 2017 steps up its commitment to public-private partnerships Manitoba’s budget 2007 provides for an infrastructure investment of over $1.7B in 2017-2018 and confirms the intention of the government to eliminate regulatory obstacles to private investment in public infrastructure in order to promote public-private partnerships. In the context of one of the largest infrastructure budget in Manitoba’s history, here are some of the major investments to be made in 20172018: $747M for roads, highways, bridges and protection against floods; $641M for health, education and housing infrastructure; and $370M for municipal and local infrastructure and other provincial infrastructures. The City of Winnipeg implemented several PPP projects in the areas of transportation and social assets. The Canada-Europe Free Trade Agreement: impacts on the infrastructure industry The Canada-European Union Comprehensive Economic and Trade Agreement (“CETA” or the “Agreement”) will create one of the largest free-trade zones in the world. It may come into force on a provisional basis once the Canadian Senate has validated Bill C-30. Then, only the approval of each of the member countries of the European Union (“EU”) will remain to be obtained for the Agreement to come into force on a final basis since it has already been ratified by the European Parliament. CETA will provide access to the large European market, which represents a GDP of approximately 15,000 billion euros per year and more than 500 million consumers, to Canadian businesses. The coming into force of CETA will have a significant impact on the infrastructure industries in Canada and Europe. We can already identify four aspects of the Agreement which will have direct consequences on same. Access to the European public market The European infrastructure public market represents between 2,000 and 3,000B dollars per year, which is even more than that of the United States. With CETA, Canadian firms, working particularly in the areas of engineering, project management and construction, will gain access to the national public markets of the EU 28 member States . Moreover, businesses will be allowed to participate in calls for tenders of, among others, public law bodies such as hospitals, schools and universities, European utilities (such as gas, power and water distribution) and entities responsible for urban and rail transportation. CETA will also provide European businesses with access to the Canadian public market, which has the wind in its sails since the announcement of the creation of the Canada Infrastructure Bank in the Government of Canada’s 2017 budget. Better labour mobility CETA will also increase labour mobility between Europe and Canada by facilitating the temporary assignment of some categories of persons (for example business people) . Therefore, it will be easier for businesses who bid on call for tenders to do business with the EU by having a person directly in the field. It will also be possible, in some cases, for businesses (such as those offering, for instance, installation and maintenance services), to send their own employees on site to supervise the work or train employees for this purpose. Another interesting aspect of CETA is the chapter on the recognition of the professional qualifications, which aims to establish a procedure for facilitating the potential negotiation of agreements for the recognition of qualifications of professionals and individuals working in regulated trades. Accordingly, it will be easier for Canadian and European businesses to hire qualified personnel. Elimination of tariffs The Agreement will eliminate all the tariffs currently collected on originating products used for infrastructure construction and maintenance. This includes building materials, energy production equipment, electrical equipment, railway products and information and communication technology products. The elimination of these duties represents a significant economic benefit for Canadian businesses, which had to pay high tariffs on many categories of products . For example, the customs duties on equipment for energy production and distribution could be as high as 14% and 6.5% for concrete products. European products will also enter Canada duty-free. Cooperation in regulatory matters Lastly, the Agreement will also implement the Protocol on the Mutual Acceptance of the Results of Conformity Assessment, which will facilitate the acceptance by Canada and the EU of test results and product certification from the other party, resulting in lower costs for businesses. Indeed, a business which had to go to Europe to have its products certified will be able to do so in Canada and the certification will be recognized by the EU . The same process will apply to European businesses wishing to have their products certified in Canada. This protocol applies, among other things, to building materials, machinery, electronic equipment and ATEX (“atmosphere explosive”) equipment. In closing, once CETA is in force, even on a provisional basis, Canadian and European businesses will benefit from privileged access to each others’ markets . Corporations in the infrastructure sector would be well-advised to carefully consider the new business opportunities resulting from the application of the Agreement. Biomethanization: a fast-growing market in Québec Biomethanization is a process whereby organic matter is fermented in the absence of oxygen, leading to the production of biogas (or biomethane) and a solid waste called digestate. Biogas may be reclaimed under the form of thermal or electrical energy or, once refined, it can replace natural gas. Digestate can be used as an organic fertilizer. Biomethanization is considered to be a renewable source of energy which participates in the energy transition toward a decarbonised economy. This form of energy has been around for many years in Québec with private projects such as the Gazmont power plant in 1996, located near the Miron Quarry in Montréal and EBI Energy’s power plant in 2003, located in Saint-Thomas, in the Lanaudière region . More recently, in 2017, Lavery participated in the financing of the Biomont project, a biogas cogeneration power plant located in Montréal, in the Villeray - Saint-Michel - Parc-Extension borough. The biomethanization sector has found a new impetus since 2010, with the implementation of the Program for the Treatment of Organic Matter through Biomethanization and Composting1 which encouraged municipalities and private stakeholders to undertake biomethanization projects. This initiative, which was developed by the Government of Québec and relies on the resources of the Green Fund, aims to banish any form of disposal of organic materials in landfills by 2020 . More recently, in 2016, the federal government confirmed $5B in investments over 5 years2 through the Green Infrastructure Fund, which aims, among other things, to reduce the production of greenhouse gases. The various programs offer financial support to many types of sponsors-operators, particularly cities (40%), regional county municipalities (“RCM”, 13%) and common-interest partnerships (47%) grouping cities, private businesses and RCMs . There are currently seven projects in the development phase, two in the construction phase, three in the commissioning phase and four in the operating phase. Among the largest projects in the development phase are those of the City of Montréal ($237M in investments), Québec City ($124M) and the City of Laval ($123M). The four completed and operating projects are those of Vallée-du-Richelieu, the City of Rimouski, the Rocher-Percé RCM and Multitech Environment, Rouyn-Noranda. The size of the projects varies from one community to the other based on the quantity of metric tonnes to be processed annually. The total cost of the investment is between $1 .3M and $237M (median of $27 .1M) . Both levels of government participate in the financing of the various projects in proportions varying between 20% and 70% of the total cost of the projects (53% on average) . In addition to the financing granted by the provincial and federal governments, the remainder of the financing is split between municipalities and private investors. Biomethanization is still a young technology in Québec and even in Canada. Giving time the market to adapt to this new reality will lead to its mastery, a challenge that sponsors-operators must face . Implementing these projects involves an adequate assessment of the risks related to the design, construction, technological choices and operational management, failing which costs are likely to spiral out of control . In this respect, the necessity of importing outside know-how still seems relevant, since many suppliers and operators who are involved in these projects are based in Europe or the United States . For European businesses, the new Canada-Europe free trade agreement may certainly promote their increased involvement. Lastly, another challenge brought about by these projects is that of profitability, namely, the valorization of outputs relative to inputs and the production process in a context of pressures on the price of gas and electricity. However, the growth of the carbon market, which henceforth includes Québec, the State of California and Ontario, seems to pave the way to a new source of income for sponsors and may improve the financial model of these projects. In conclusion, the program of the Government of Québec contributed to more than 16 biomethanization projects throughout the province, thereby reducing the environmental impact. The latest is the Matane biomethanization project, for which the municipality just completed a call for tenders on April 6, 2017. These projects represent many potential business opportunities for businesses operating in fields such as waste processing, waste-water treatment, renewable energies, etc., that wish to diversify their activities by taking advantage of the growth of the green economy.   Program running until December 31, 2017 (French only)

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  • Artificial Intelligence and the 2017 Canadian Budget: is your business ready?

    The March 22, 2017 Budget of the Government of Canada, through its “Innovation and Skills Plan” ( mentions that Canadian academic and research leadership in artificial intelligence will be translated into a more innovative economy and increased economic growth. The 2017 Budget proposes to provide renewed and enhanced funding of $35 million over five years, beginning in 2017–2018 to the Canadian Institute for Advanced Research (CIFAR) which connects Canadian researchers with collaborative research networks led by eminent Canadian and international researchers on topics including artificial intelligence and deep learning. These measures are in addition to a number of interesting tax measures that support the artificial intelligence sector at both the federal and provincial levels. In Canada and in Québec, the Scientific Research and Experimental Development (SR&ED) Program provides a twofold benefit: SR&ED expenses are deductible from income for tax purposes and a SR&ED investment tax credit (ITC) for SR&ED is available to reduce income tax. In some cases, the remaining ITC can be refunded. In Québec, a refundable tax credit is also available for the development of e-business, where a corporation mainly operates in the field of computer system design or that of software edition and its activities are carried out in an establishment located in Québec. This 2017 Budget aims to improve the competitive and strategic advantage of Canada in the field of artificial intelligence, and, therefore, that of Montréal, a city already enjoying an international reputation in this field. It recognises that artificial intelligence, despite the debates over ethical issues that currently stir up passions within the international community, could help generate strong economic growth, by improving the way in which we produce goods, deliver services and tackle all kinds of social challenges. The Budget also adds that artificial intelligence “opens up possibilities across many sectors, from agriculture to financial services, creating opportunities for companies of all sizes, whether technology start-ups or Canada’s largest financial institutions”. This influence of Canada on the international scene cannot be achieved without government supporting research programs and our universities contributing their expertise. This Budget is therefore a step in the right direction to ensure that all the activities related to artificial intelligence, from R&D to marketing, as well as design and distributions, remain here in Canada. The 2017 budget provides $125 million to launch a Pan-Canadian Artificial Intelligence Strategy for research and talent to promote collaboration between Canada’s main centres of expertise and reinforce Canada’s position as a leading destination for companies seeking to invest in artificial intelligence and innovation. Lavery Legal Lab on Artificial Intelligence (L3AI) We anticipate that within a few years, all companies, businesses and organizations, in every sector and industry, will use some form of artificial intelligence in their day-to-day operations to improve productivity or efficiency, ensure better quality control, conquer new markets and customers, implement new marketing strategies, as well as improve processes, automation and marketing or the profitability of operations. For this reason, Lavery created the Lavery Legal Lab on Artificial Intelligence (L3AI) to analyze and monitor recent and anticipated developments in artificial intelligence from a legal perspective. Our Lab is interested in all projects pertaining to artificial intelligence (AI) and their legal peculiarities, particularly the various branches and applications of artificial intelligence which will rapidly appear in companies and industries. The development of artificial intelligence, through a broad spectrum of branches and applications, will also have an impact on many legal sectors and practices, from intellectual property to protection of personal information, including corporate and business integrity and all fields of business law. In our following publications, the members of our Lavery Legal Lab on Artificial Intelligence (L3AI) will more specifically analyze certain applications of artificial intelligence in various sectors and industries.

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  • The latest news from the Canadian infrastructures market / Major trends in the infrastructures market for 2017

    TABLE OF CONTENTS The latest news from the Canadian infrastructures market Defense Construction Canada issues Request for Expressions of Interest for an energy performance contract Boralex completes financing of the Yellow Falls hydro project in Ontario Boralex and AWEC announce a new partnership CC&L and Desjardins acquire a majority interest in the South Fraser Road project Boralex purchases Enercon’s interest in the Niagara Region Wind Farm in Ontario United States: State officials seek abolition of the Clean Power Plan The sale of TerraForm Power moves forward CDPQ and DP World launch a US$3.7 billion port assets fund The Canadian government approves two pipeline projects TerraForm Power successfully refinances its solar power portfolio in Canada The Northwest Territories are seeking financial consulting services for PPPs Crown corporations concerned over the market’s ability to deliver all the infrastructure projects currently planned in Canada Québec is considering a PPP for the Louis-Hippolyte- LaFontaine Tunnel rehabilitation project Consortiums pre-qualified for the Montréal LRT contracts Canada’s Minister of Infrastructure and Communities, Amarjeet Sohi, outlines the federal government’s infrastructures plan Alberta approves 400 MW of new renewable energy projects procurement Refinancing of Montréal Gateway Terminals partnership completed Axium acquires its first solar assets in the U.S. PPP for île d’Orléans Bridge? Global Infrastructure Partners creates the largest infrastructure fund in the world Fiera Infrastructure acquires 50% interest in an Ontario wind farm Major trends for 2017 The latest news from the Canadian infrastructures market Defense Construction Canada issues a Request for Expressions of Interest for energy performance contract Defense Construction Canada (DCC) has issued a Request for Expressions of Interest, dated December 20, 2016, for improvements in energy efficiency contracts covering nine military facilities across Canada (Québec, Ontario, Alberta, Nova Scotia and New Brunswick). The services required include preparation of a feasibility study, financing, performance guarantees, and construction and project management. The payment mechanism, financial structure and energy-saving targets would be specific to each project. The approximate value of the contract would be $52 million, on the basis of a 10-15% reduction in service costs and a maximum amortization of 15 years from the beginning of work. Responses to the Request for Expressions of Interest had to be submitted February 1, 2017. DCC plans to finalize the process by March 31, 2018. Boralex completes financing of the Yellow Falls hydro project in Ontario On December 16, 2016, Boralex announced that it had closed a $74.3 million financing for its Yellow Falls hydro project in Ontario. The 16MW Yellow Falls hydroelectric power station is on the Mattagami River, near the town of Smooth Rock Falls. The total project cost is approximately $91.7 million. Financing was structured on the basis of a hybrid model and includes a short-term tranche of $9.1 million fully amortized over 10 years, and a long-term (39-year) tranche of US$65.2 million which will begin amortizing over 29 years after repayment of the shorter tranche, the balance being due at maturity. Together, both tranches will bear a fixed average interest rate of approximately 5% over the life of the loans. The lenders are Canada Life, The Great West Life Assurance Company and London Life. Construction of the Yellow Falls hydroelectric site has already begun, with commissioning planned for the end of the 2nd quarter of 2017. The plant will operate under a 39-year power purchase agreement with IESO. The Yellow Falls project was developed jointly with First Nation partners, the Taykwa Tagamou Nation and the Mattagami First Nation. The two First Nations, as well as the initial project proponent, Canadian Hydro Developers, hold options allowing them to acquire a participation of up to 31.25% of the project. Boralex and AWEC announce a new partnership On December 15, 2016 Boralex and the Alberta Wind Energy Corporation (AWEC) announced the creation of the Alberta Renewable Power Limited Partnership, owned respectively 52% and 48% by the two entities. This collaboration will allow Boralex and AWEC to pool their mutual expertise in developing and implementing wind and solar projects in Alberta and in Saskatchewan. This new joint venture marks Boralex’s entry into Alberta’s renewable energy market. The partnership will focus primarily on public utility wind farms with capacities greater than 5 MW and will also seek sites for potential solar projects. The partnership expects to prepare tenders for the Windy Point and Old-Elm/Pothole projects in Alberta, and for a portfolio of other projects in Alberta and in Saskatchewan. CC&L and Desjardins acquire a majority interest in the South Fraser Road project Connor, Clark & Lunn Infrastructure (“CC&L”) and the Desjardins Group Pension Plan acquired a majority interest in the South Fraser Perimeter Road project in British Columbia, a public-private partnership (PPP) project. ACS (50%), Star America Infrastructure Fund (25%) and Ledcor Infrastructure Investments (25%) were the project’s initial shareholders. ACS sold 37.5% of the total project for $24.7 million, and will retain a 12.5% minority interest in the project. The transaction closed on December 9, 2016. The project was refinanced in October 2015 for $228 million. Boralex purchases Enercon’s interest in the Niagara Region Wind Farm in Ontario In a media release dated December 8, 2016, Boralex announced its acquisition of Enercon’s 50% interest in the 230 MW Niagara Region Wind Farm in Ontario for a total cash consideration of $238.5 million. The Wind Farm, which extends over the Regional Municipality of Niagara, the Township of West Lincoln, the Town of Wellfleet and Haldimand County in Ontario, was commissioned on November 2, 2016 and comprises 77 Enercon E-101 turbines. The Wind Farm has a 20-year power purchase agreement with IESO. In October 2016, Enercon and its partner, Grand River Development Corporation, secured a $828.3 million non-recourse financing for the project. Grand River Development Corporation financed its capital investment in the project by way of a non-recourse loan from Enercon that will be transferred to Boralex. United States: State officials seek abolition of the Clean Power Plan A coalition of attorney generals and government agency representatives of 24 U.S. states have urged the Trump administration to issue an executive order declaring the Clean Power Plan unlawful. In a letter dated December 14, 2016 to Vice-President Mike Pence, House Leader Paul Ryan and Senate Majority Leader Mitch McConnell, the signatories contend that the Clean Power Plan contradicts section 111 of the Clean Air Act, maintaining that the section does not give the EPA power to regulate emissions from a source that is already regulated. They also claim that the rules subvert each state’s authority over its own sources of electricity generation. The Clean Power Plan, widely regarded as draft environmental legislation bearing President Obama’s stamp, fixes carbon emission reduction objectives applicable to power plants. One of the aims of the draft legislation was to accelerate the shutdown of coal-fired plants while increasing the share of renewal energy projects. The legislation remains suspended further to the Supreme Court’s February 2016 decision delaying implementation. In his campaign, President Donald Trump stated that he opposed the Clean Power Plan. The signatories of the letter noted that an order would not formally cancel the plan, but would however assure States that it would not be applied. The groups also suggested that Congress and the administration work together on legislation that would prevent the EPA from drafting regulations similar to the Clean Power Plan in the future. The letter was also signed by the representatives of West Virginia, Wyoming and Kentucky, the three largest coal-producing states in 2014. Industry participants stated they do not expect any significant changes in the short term if the Clean Power Plan is cancelled and noted that the growth in renewable energy production was largely stimulated by state initiatives rather than by federal mandates. The sale of TerraForm Power moves forward TerraForm Power, the yieldCo created by the US developper Sun Edison, is currently assessing preliminary offers from various strategic buyers and investors, in preparation for the next phase of the sale process, namely committed offers, which had to be submitted mid-January 2017. Pattern Energy Group, Brookfield Asset Management, a Texas-based renewable energy company and other entities established in Asia, are among the potential bidders. TerraForm Power, with a market capitalization of US$1.9 billion, manages US$3 billion in solar and wind assets in North America and in the UK. The energy company SunEdison, currently under bankruptcy legislation protection, remains the largest shareholder of TerraForm Power. CDPQ and DP World launch a US$3.7 billion port assets fund Caisse de dépôt et placement du Québec (CDPQ) and Dubai-based DP World have created a $5 billion (approximately US$3.7 billion) fund, to be used as a platform for investing in ports and terminals around the world (excluding the United Arab Emirates). DP World holds a 55% interest in this investment vehicle, and CDPQ holds the remaining 45%. This new vehicle will invest directly in equity, primarily in existing infrastructure assets, but will also invest up to 25% in projects under development. The fund has invested $865 million in two of DP World’s Canadian container terminals, located in Vancouver and Prince Rupert. CDPQ has acquired a 45% interest in the combined assets. CDPQ Infra, the infrastructure division of Caisse de dépôt et placement du Québec, currently has $13 billion in assets under management, 25% of which is invested in the United States, and 10% in Canada. In November 2013, CDPQ acquired a 26.67% interest in Global Infrastructure Partners in the Port of Brisbane in Australia. The Canadian government approves two pipeline projects According to a November 29, 2016 statement, the federal government has approved two major oil pipeline projects: the Kinder Morgan’s Trans Mountain Expansion Project and the Enbridge Line 3 replacement project. The Trans Mountain pipeline has been in existence for 63 years. It transports crude and refined oil between Alberta and British Columbia. The expansion project will increase the pipeline’s nominal capacity from 300,000 to 890,000 barrels a day. Construction of the Trans Mountain project is scheduled to begin in September 2017, with a commissioning date planned for the end of 2019. The cost of the project would be approximately $7 billion. Calgary-based Enbridge’s Line 3 Replacement Project involves replacing a 50-year old pipeline from Alberta to Wisconsin that would double its original capacity to 760,000 barrels a day. Project completion is planned for 2019. The Canadian government rejected a third pipeline project, the Northern Gateway project, also proposed by Enbridge. The project was envisaged as a twin pipeline system that would have exported bitumen and imported natural gas condensate. TerraForm Power successfully refinances its solar power portfolio in Canada TerraForm Power recently contracted a $120 million 7-year loan with Deutsche Bank to refinance its Canadian solar power portfolio. The loan bears interest at an average interest rate of 3.7%. TerraForm Power’s solar power portfolio includes the following projects: SunE Perpetual Lindsay (15.5MW) March Hill (18.5 MW) Woodville (12.6 MW) Sandringham (13.1 MW) The four projects have 20-year power purchase agreements with IESO. The financing terms and conditions give TerraForm Power the possibility of expanding the loan principal by an additional $123 million (“accordion feature”). The Northwest Territories are seeking financial consulting services for PPPs The Government of the Northwest Territories has launched a call for tenders for financial consultancy services for future PPP projects. The selected firm’s mandate would be to assist the government in developing and evaluating the call for tender process. It will also contribute to the creation of appropriate administrative structures and training programs. The province contemplates at least three potential projects being carried out in PPP mode. A first project, estimated at $700 million would to construct a section of highway in the Mackenzie Valley from Wrigley to Normal Wells. A second project involves construction of the All Season road (approximately $150 million). The third project is also a highway, extending to the Arctic Coast as far as a deep water port in western Nunavut. To date, the province has been involved in two PPPs: the Stanton Territorial Hospital which completed its financial close in August 2015, and the Mackenzie Valley fibre optic line, which finalized its closing in November 2014. Crown corporations concerned over the market’s ability to deliver all the infrastructure projects currently planned in Canada A number of Canada’s main PPP agencies appear to be concerned over the market’s ability to deliver the increasingly high number of projects that are planned across the country. Some agencies, such as Partnership BC or Infrastructure Ontario, try to structure their procurement process to maintain market competitiveness, for example by giving companies more time to assess their needs, or by saturating the market with a large number of requests over a short period of time. Public sector agencies that must manage a growing number of projects in development must also deal with this problem. Québec considering a PPP for the Louis-Hippolyte-LaFontaine Tunnel rehabilitation project In the early part of 2017, Transports Québec will assess private-sector interest in the Louis-Hippolyte-LaFontaine Tunnel rehabilitation project. The government agency is planning a major rehabilitation of the tunnel as well as related work on Highway 25. A traditional procurement model will be assessed alongside Design – Build – Finance and Design – Build – Finance – Operate options. Transports Québec will conduct a market survey of potential privatesector partners (engineering consulting firms, general contractors, investors) regarding the commercial structure, allocation of risk, and terms of remuneration for the project. The various aspects of the project include replacement of the concrete screed and installation of a surface protective coating. The project cost and project schedule have not yet been determined. However preliminary work the project is underway, and the second phase of the project is slated to begin after 2018. Consortiums pre-qualified for the Montréal LRT contracts CDPQ Infra, a subsidiary of the CDPQ, conducted a pre-selection of consortiums for the Réseau Électrique Métropolitain (“REM”) project, the cost of which is estimated at $5.9 billion. In June 2016, the CDPQ published two requests for qualification: one for the infrastructure engineering, procurement and construction (EPC) contract and the other for the rolling stock, systems and operation and maintenance services (RSSOM) contract. The cost of the EPC contract will be approximately $4.4 billion and the RSSOM contract will be approximately $1.5 billion. The following consortiums and companies were pre-selected: For the EPC contract: Groupe NouvLR: SNC Lavalin, Dragados, Aecon, Pomerleau, EBC, Aecom Kiewit-Eurovia, a partnership: Construction Kiewit, Eurovia Québec, WSP, Parsons For the RSSOM contract: Alliance Montréal Mobilité (AMM): Parsons, Hyundai Rotem Company, RATP Dev Canada and Thales Bombardier Transportation Canada Inc. Groupe des Partners pour la Mobilité des Montréalais (PMM): Alstom, SNC-Lavalin The pre-selected teams each have six months to submit a final proposal. Construction is expected to start in the spring of 2017 and the first trains are expected to be in operation by the end of 2020. The project will allow for the deployment of a new high-frequency light rail transit network by building and transforming close to 67 km of double tracks, 24 stations, 9 bus terminals and 13 park-and-ride facilities. The project will also include the acquisition of a fleet of over 200 cars. Canada’s Minister of Infrastructure and Communities, Amarjeet Sohi, outlines the federal government’s infrastructures plan In an interview granted to InfraAmericas, Amarjeet Sohi, Canada’s Minister of Infrastructure and Communities explained the federal government’s infrastructure projects and in particular the role of the future Canada Infrastructure Bank (“CIB”). The CIB’s mandate will be to advise the federal government as well as provincial and municipal authorities on building infrastructure projects through public-private partnerships. The CIB, which has received $15 billion in government funding, will review each transaction and will structure it to ensure the protection of the public interest, while seeking to attract private capital. The relevant projects are primarily in the area of transit infrastructure: building of roads, bridges, tunnels, public transit and interprovincial transit lines. The mandate of the CIB is also to promote renewable energy projects so that ultimately the use of coal will be eliminated in Canada, in furtherance of the COP21 Agreement signed in Paris in 2015. The Minister cited the REM project developed by the CDPQ in Montréal as an example of the situation where an institution dedicated to infrastructure can make a difference by mobilizing private capital for a project that would not otherwise be achievable because the investment required would be too high for government budgets. As regards asset recycling transactions – another way to fund new projects - the government is awaiting the result of a Department of Finance Canada study, which would determine the role that the CIB could play. PPP Canada will continue to play a role in formulating new infrastructure projects and will support the Government in creating the Infrastructure Bank. Alberta approves 400 MW of new renewable energy projects procurement The Government of Alberta has authorized the Alberta Electric System Operator (AESO) to launch a call for tenders for 400 MW of renewable energy in 2017. This call for tenders would be the first of a series that should span the next 14 years, in the knowledge that Alberta plans to add 5,000 MW of renewable generation capacity by 2030. The AESO would accept projects that have a capacity of at least 5 MW and that would be operational by the end of 2019. The Authority will consider new projects and expansions of existing facilities. The AESO plans to issue a Request for Expressions of Interest in the 1st quarter of 2017, a request for qualification in the 2nd quarter 2017 and a request for proposals in the 4th quarter of 2017. Renewable energy is part of Alberta’s long-term climate policy. The province plans to gradually eliminate coal-fueled electricity generation from 49% to zero by 2030. Refinancing of Montréal Gateway Terminals partnership completed A group of Montréal Gateway Terminals shareholders, led by Axium Infrastructure, closed the refinancing of the company’s bank debt, which amounted $252 million on November 17, 2016. in March 2015, a consortium comprised of Axium, Desjardins, Manuvie, FTQ and Industrial Alliance, acquired the company’s assets from Morgan Stanley’s first infrastructure fund. The transaction was initially financed by $252 million in “mini-perm” bank financing over a five-year term. The debt was refinanced via a private bond placement in which several American and Canadian buyers, such as Prudential, Barings and Manuvie participated. Axium acquires its first solar assets in the U.S. Axium Infrastructure has acquired an 84-MWac (110 MWdc) portfolio of solar photovoltaic installations in the USA and Canada from Renewable Energy Trust Capital (RET Capital). The transaction, which closed on November 17, 2016, is Axium Infrastructure’s first solar investment in the US. The portfolio includes eight solar parks in California, Georgia and Ontario. These facilities reached commercial operations between 2012 and 2015. They each have long-term fixed-price power purchase agreements with investment-grade utilities. PPP for île d’Orléans Bridge? The Government of Québec will review all possible options for carrying out the project for a new cable-stayed bridge linking the île d’Orléans to the north shore of the St. Lawrence River. Until now, the preferred option was traditional public sector construction and operation. Two other options are currently under consideration: having the project carried out either in the private sector or in a private-public-partnership (PPP). The question of a bridge toll appears to be definitively ruled out. On November 24, 2016, the ministère des Transports du Québec (MTQ) launched a call for tenders for consultants specialized in finance and economics whose mandate would be to review and analyze the various modes of delivery for the île d’Orléans Bridge project. MTQ officials have estimated the cost of traditional construction and maintenance, i.e., fully government-funded. Although that assessment has not been disclosed, there is an unofficial estimate circulating that puts the budget at $400 million. The current bridge dates from 1935. It must be replaced to conform to new seismic standards, and also because its piles are sinking into the soft bed of the river, on the north shore. The most recent schedule put forward by the government is that the bridge will be in operation by 2024. The new bridge, if built as a concrete structure would have a life-span of 75 years, and if built as a metal structure, would have a life-span of more than 100 years. Global Infrastructure Partners creates the largest infrastructure fund in the world The third fund created by Global Infrastructure Partners – baptized as Global Infrastructure Partners III (“GIP III”) – was completed at US$15.8 billion. The final amount of GIP III is bigger than that of the Brookfield Infrastructure Fund III (“BIF III”), which achieved a final closing of US$14 billion in July 2016. The GIP III will have a 10-year mandate with two options to extend, each for one year. It is planning on making 10 to 14 equity investments of approximately US$500 million to US$1.75 billion over a five-year period. Fiera Infrastructure acquires 50% interest in an Ontario wind farm On January 25, 2017, Fiera Infrastructure Inc., a subsidiary of Fiera Capital Corporation, announced that it had acquired Suncor Energy’s 50% interest in the 100-MW Cedar Point II wind facility in Ontario, through its Fiera Infra LP fund. This is Fiera Infrastructure’s first wind energy investment. Cedar Point II is located in the counties of Lambton and Plympton-Wyoming and has been operational since October 2015. It sells its entire output to IESO under a 20-year power purchase agreement. NextEra Energy Canada, a subsidiary of NextEra Energy Resources, holds the remaining 50% of the project’s assets. National Bank Financial Markets acted as Fiera Infrastructure’s adviser, financial arranger and lender. Major trends in the infrastructures market for 2017 It is interesting to note the major worldwide trends in the infrastructures sector for 2017. Below is a compilation for our readers of the recurring themes gleaned from the analyses of experts in the field. A political commitment to reviving economic growth by means of infrastructure spending Accepted by most economic analysts and political leaders across the spectrum, investments in public infrastructures are universally acknowledged as an effective tool for economic interventionism. Generally, such investments are accompanied by measures to stimulate private investment which in turn optimizes government expenditures. The proliferation of infrastructure investment vehicles accompanied by competition in the fund industry over fund size Intended to attract private capital to infrastructure projects, the number and size of investment funds should continue to grow, particularly under the influence of investors from emerging countries. In some cases, they could compete head-on with traditional developers and builders. Growing competition in the construction industry should increase pressure on sector company margins This phenomenon should stimulate cooperation among firms seeking synergies and economies of scale, and also promote technological innovation. The transportation sector should play a more important role and surpass that of energy in new infrastructure investments Growing urbanization, associated with congestion and pollution in large cities and the need to facilitate trade will push governments to prioritize urban transit projects, especially rail projects. Economic expansion in China China should accelerate its economic expansion in Asia due to the USA’s disinvestment in the region and the failure of the TransPacific Partnership. This situation will affect North American companies and small local Asian companies that cannot compete with large Chinese companies. The energy storage sector The exponential growth of the energy storage sector caused by the problem of managing an increasingly complex energy mix, including renewable energy, which by its very nature is intermittent, and fossil fuels and nuclear energy, the flexibility of which remains limited. Commercially operational technological solutions are beginning to emerge and will represent opportunities for sophisticated investors.

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  • October news on the Canadian infrastructure market

    Creation of a Canadian infrastructure bank On October 20, 2016, the Advisory Council on Economic Growth published its report entitled “Unleashing Productivity Through Infrastructure”. One of the report’s recommendations is to create a Canadian Infrastructure Development Bank whose objective would be to deliver projects with an aggregate value of more than $200 billion over 10 years, while at the same time minimizing the use of government budgets. The new bank could grant financing in the form of subordinated debt or equity to supplement the financing provided by institutional investors in various projects. The new entity would, in fact, promote the PPP delivery model or alternative financing models, although its role would not be to replace the existing provincial bodies, such as Infrastructure Ontario or the Société québécoise des infrastructures. Moreover, the federal government will also wish to ensure that the establishment of an infrastructure bank does not discourage investments by the private sector. Finally, on November 1, 2016, the Finance Minister, Bill Morneau, confirmed the creation of the Canada Infrastructure Bank (“CIB”) in 2017. The new institution will receive an initial capitalization of $35 billion. It remains to be seen whether the CIB will be governed by the Bank Act or whether a new legislative scheme will be set up for this new institution. Project to privatize eight Canadian airports In the aforementioned report, “Unleashing Productivity through Infrastructure”, the Advisory Council on Economic Growth proposes the privatization of the airports of Toronto, Vancouver, Montreal, Calgary, Edmonton, Ottawa, Winnipeg and Halifax. The Council also recommends the use of private investment in other public infrastructures such as toll highways and bridges, highspeed railways, smart cities, broadband internet networks, power transmission lines and natural resources infrastructure. This is not the first time the federal government has considered a project to privatize airports, but no decision seems yet to have been made at this stage, nor any agenda unveiled. However, the Canada Development Investment Corporation (“CDEV”), a federal Crown corporation reporting to the Finance Minister, Bill Morneau, has been mandated to hire consultants to advise the government. On the other hand, during his speech to the Montreal Chamber of Commerce on November 2, 2016, the Minister of Transport, Marc Garneau, mentioned that privatization was only one of the options on the table. Boralex closes a €100 million wind farm project financing in France Boralex Inc. has announced the closing of financing for the Mont de Bagny (24 MW), Artois (23.1 MW) and Voie des Monts (10 MW) wind farms in France, for a total of approximately €100 million (Cdn$145 million). This financing is provided by Crédit Industriel et Commercial (Groupe Crédit Mutuel) and BPI France Financement. The construction of each of the projects is already underway and they should all be commissioned by the end of 2017. This announcement was made shortly after Boralex acquired a wind farm portfolio of nearly 200 MW in France and Scotland, in September 2016. In June 2016, Boralex also closed another financing of €20.4 million for two wind farms in France. These large transactions confirm Boralex’s position as France’s largest independent producer of onshore wind power, through its Boralex Europe subsidiary. Possible refinancing of Montreal Gateway Terminals’ debt The Montreal Gateway Terminals project is currently studying the possibility of refinancing its bank debt. This consortium, including Axium, Desjardins, Manulife, the FTQ and Industrial Alliance, acquired the company’s assets from Morgan Stanley’s first infrastructure fund in March 2015. The transaction was financed with mini-perm bank financing of $252 million over a five-year term. The banking syndicate currently consists of BMO, CIBC, MUFG & BTMU, RBC and Scotiabank. DBRS downgrades Montreal hospital bonds On October 20, 2016, the DBRS credit rating agency downgraded the rating of the senior secured bonds of the Centre hospitalier de l’Université de Montréal (“CHUM”) from BBB (high) to BBB. This downgrade was due to the postponement of the substantial completion date of phase 1 from the second quarter of 2016 to the first quarter of 2017. This represents an additional delay of 20 weeks since the date of DBRS’s last review and 48 weeks since the initial substantial completion date of April 22, 2016. The project will be in default if delays continue beyond July 2017. HSBC implements a worldwide infrastructure financing platform HSBC recently announced that it was setting up an infrastructure financing platform with a worldwide mandate, whose purpose will be to mobilize capital from institutional investors. The team will be based in London and plans to sign its first mandate with the HSBC insurance company, which seeks to invest primarily in senior, investment grade infrastructure debt. In doing so, HSBC is imitating other international institutions that are seeking to capitalize on the appetite for private capital for infrastructure debt. For example, the French bank, Natixis, has also established its own infrastructure debt platform, based on investments from insurance companies. CIBC Asset Management establishes an energy and infrastructure team CIBC Asset Management has just set up an infrastructure and power projects financing team. The team’s mandate will be to take out interests in the form of private placements or public bond issues in the Canadian infrastructure, PPP, and renewable or non-renewable power production markets. This is therefore a new player from the banking industry positioning itself in the market for long-term public and private financing of infrastructure projects. Until now, TD Asset Management and Desjardins Asset Management were the two most well-known Canadian banking institutions active in fixed income infrastructure financing, in competition with the insurance companies that traditionally dominate this market. Bond refinancing for Kingston solar park On October 19, 2016, Connor, Clark & Lunn (“CC&L”), Samsung and a group of co-investors closed a $633 million bond issue for the refinancing of the Kingston Solar project in Ontario. Kingston Solar is a 100 MW project, one of the largest in Canada, located near the city of Kingston, Ontario, which commenced operations in September 2015. The project benefits from a 20-year power purchase contract with IESO. The bond issue, which DBRS rated BBB, will mature on July 31, 2035 and bears interest at a fixed rate of 3.571%. This is CC&L’s second refinancing of a solar park through the issuance of bonds after the refinancing of Grand Renewable Solar — a project of the same size as Kingston Solar — completed in June 2016. Public bond issues are an appealing option for the refinancing of Canadian renewable energy projects. However, the number of transactions completed to date has been relatively modest, in part because of the constraints imposed by the credit rating agencies, which, until now, had encouraged promoters to turn to more traditional types of financing, such as medium-term bank loans or private placements.

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  • New disclosure obligations for Quebec mining, oil and gas companies

    Quebec mining, oil and gas companies are henceforth subject to the imposing disclosure regime under the Act respecting transparency measures in the mining, oil and gas industries (the “Act”), which came into force last October 21. This statute echoes the Extractive Sector Transparency Measures Act (Canada),1 which took effect on June 1, 2015, and follows a global trend to increase the transparency of mining, oil and gas exploration and development. The measures provided for in the Act are aimed at discouraging and detecting corruption, as well as fostering the social acceptability of these activities. Under the Act, the companies subject to the Act are required to declare in a statement, as of the next fiscal year following their current fiscal year on October 21, 2015, the payments covered by the Act made to payees for each project and country in which they have operations. Furthermore, this obligation extends to the subsidiaries controlled by a company subject to the Act. The statements will be made public for five years. Companies subject to the Act Is subject to the Act any company which engages in exploration for or development of mineral substances or hydrocarbons and which meets any of the following requirements: its securities are listed on a stock exchange in Canada and its head office is in Quebec; or it has an establishment in Quebec, exercises activities or has assets in Quebec and, based on its consolidated financial statements, meets at least two of the following three conditions for at least one of its two most recent fiscal years: $20 million or more in assets, $40 million or more in revenue, an average of 250 employees or more. Payments covered The payments covered are monetary payments or payments in kind made to the same payee during a fiscal year, where the total value of those payments is equal to or greater than $100,000. The following payments are subject to disclosure: taxes and income tax, other than consumption taxes and personal income taxes royalties fees, including rental fees, entry fees, regulatory charges and any other consideration for licences, permits or concessions production entitlements dividends other than those paid as an ordinary shareholder of a person subject to the Act bonuses, including signature, discovery and production bonuses contributions for infrastructure construction or improvement Payees The Act defines a payee as a government, a body established by two or more governments, a municipality or an aboriginal community,2 as well as an agent exercising powers or duties for such payees. Application and administration of the Act The administration of the Act is assigned to the Autorité des marchés financiers ("AMF"). To avoid duplication, the Act provides that a statement filed in accordance with the requirements of another state may be substituted for the statement required under Quebec law if the government has determined by regulation that the requirements of that state are an acceptable substitute. The statement must be accompanied by a certificate made by an officer or director of the company subject to the Act, or by an independent auditor, attesting that the information contained in the statement is true, accurate and complete. In addition to the investigative powers generally available to the AMF under the Act respecting the Autorité des marchés financiers (chapter A-33.2), the Act gives it the power to require the communication of any document or information considered useful for purposes of the Act. This includes a list of the mining, oil or gas exploration or development projects in which the company subject to the Act has an interest, an explanation of how the disclosed payments were calculated, and a statement of any policies implemented for purposes of meeting the obligations under the Act. The AMF may also require an audit by an outside independent auditor of the statement or the documents pertaining to the disclosed payments. Penalties Lastly, significant penalties are provided for a failure to comply by a company subject to the Act. In particular, the Act provides for administrative monetary penalties for which the directors and officers are jointly and severally liable, unless they demonstrate that they exercised due care and diligence to prevent the failure which led to the penalty. In addition, the penal provisions provide for a fine of up to $250,000 for a failure to comply with certain significant provisions of the Act. Quebec mining, oil and gas companies will be well-advised to stay informed of the regulations that will be passed by the provincial government and which could provide for exceptions or extensions to the requirements of the Act regarding the companies subject to the Act, the payments covered and the payees concerned. 1 Need to Know newsletter, june 2015. 2 A transitional period is provided for regarding payments made to aboriginal communities. The Act will apply to these communities beginning on June 1, 2017.

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  • Federal government announces new measures to encourage mining exploration in Canada

    On March 1st, 2015, the federal Minister of Finance, Joe Oliver, and the federal Minister of Natural Resources, Greg Rickford, announced important new measures to support Canada’s mining industry in a speech at the Prospectors and Developers Association of Canada (PDAC) 2015 Convention. The federal government proposes to extend eligibility for the Mineral Exploration Tax Credit for an additional year, to flow-through share subscription agreements entered into on or before March 31, 2016. The credit is equal to 15% of specified Canadian exploration expenses (“CEE”) which are renounced by the issuer in accordance with such agreements. Under the “look-back” rule provided in the Income Tax Act1, mining companies will therefore be able to incur CEE pursuant to such agreements until December 31, 2017. The government also clarified that the expenditures associated with undertaking environmental studies and community consultations shall be treated as CEE even though the expenses were incurred by a mining company as a condition for obtaining a mining permit or licence. This means that expenses regarding environmental studies and community consultations which otherwise meet the requirements for being treated as CEE shall not be denied CEE treatment solely on the ground that the studies or consultations were required to obtain an exploration permit or licence. This clarification confirms that the term “CEE” shall be interpreted broadly and liberally and that the criterion for determining whether an activity constitutes exploration is the purpose for which it is undertaken, not its result. This announcement stems from the federal government’s finding that these expenses may currently receive different tax treatment from one jurisdiction to another depending on the requirements of the relevant provincial or territory regulatory authorities, even though the definition of CEE in the ITA is the same regardless of where in Canada the expenses are incurred. It is worth recalling that there are several tax advantages to expenses incurred by mining companies being treated as CEE, particularly in the case of flow-through share financing. The measures announced by the federal government are good news for Canada’s mining industry. The extension of the validity period for the Mineral Exploration Tax Credit should help mining companies raise funds to finance their exploration activities, which is currently a sizable challenge for most of them due to difficult capital market conditions. Since mining exploration programs last over many years, the government should consider making this credit permanent to give market participants a stable investment framework. The government’s clarification that exploration expenses must not be denied CEE treatment solely because they are a precondition to obtaining an exploration permit or licence is also very timely. This announcement should allow a harmonization of the interpretation of the definition of CEE found in the ITA. Moreover, this new measure comes at a time when the provinces and territories are imposing increasingly burdensome obligations on mining companies respecting environmental studies and community consultations. The March 1st announcement puts an end to any uncertainty that may have existed by confirming that exploration expenses incurred by mining companies to comply with these requirements may constitute CEE even though they are incurred as a prerequisite to obtaining an exploration permit or licence. _________________________________________ 1 R.S.C. 1985, c. 1 (5th suppl.) (the “ITA”).

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  • Budget 2014-2015 : The Quebec Government reduces the mining exploration tax incentives

    As part of the June 4, 2014 Budget Speech, the Quebec Government announced an immediate 20% reduction in the rates of some business tax credits. The mining exploration tax incentives in Quebec did not escape this reduction.Flow-through share regimeThe flow-through share regime currently allows investors to deduct in the calculation of their income an amount equal to 100% of the subscription price. In addition, the Quebec legislation provides for two additional deductions of 25% each where certain conditions are met. The first deduction targets the exploration expenses incurred in Quebec (both surface and underground exploration), while the second deduction targets surface exploration expenses only that are incurred in Quebec. In certain circumstances, 150% of the cost of an investment in a junior mining exploration corporation may be claimed as a deduction in the calculation of the income of an investor.Lastly, it is generally possible for a corporation proceeding with a public offering of flow-through shares to renounce the issue expenses to the benefit of the subscribers. However, this renunciation is limited to 15% of the proceeds of the issue.In the context of the 20% reduction of some tax incentives, the 25% rate of the two additional deductions is reduced to 10% for each of them. Therefore, the maximum deduction investors may benefit from is henceforth 120% of the subscription price of flow-through shares.It must be noted that the government has calculated the 20% decrease from the maximum deduction of 150% which may apply in certain circumstances. If only the additional deductions had been reduced by 20%, the total deduction would have been 140% of the subscription price of the flow-through shares. In other words, the additional deductions are reduced not by 20% but in fact by 60%, since they decrease from 50% to 20%.The 15% applicable limit of the renunciation respecting certain expenses related to the issuance of flow-through shares is reduced to 12%, i.e. a 20% decrease.These reductions apply in respect of flow-through shares issued after June 4, 2014, except for those issued further to a placement made no later than June 4, 2014 or pursuant to an interim prospectus receipt application or a prospectus exemption application made no later than June 4, 2014.Refundable tax credit for resourcesThe refundable tax credit for resources rate was varying between 15% and 38.75% depending upon several parameters, including the type of resource to which the expenses were related, the location at which they were incurred and the type of corporation incurring the expenses.In the context of the reduction of the tax assistance applied to some measures applicable to businesses, the rates applicable to the credit for resources are decreased by 20% in respect of eligible expenses incurred after June 4, 2014. Thus, the rate of this credit varies henceforth between 12% and 31% according to the same parameters.Moreover, the government announced the indefinite postponement of the coming into force of the 10% reduction of the rates applicable to the credit for resources for corporations which operate no mineral resources and are not related to such a corporation and the 5% reduction for the other corporations. This measure had been unveiled on the occasion of the March 20, 2012 Budget Speech. The decision to apply or not this measure and the time from which it may apply will be announced later by the government, following the work of the Quebec Taxation Review Committee whose creation was announced as part of the 2014-2015 budget.

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  • An Uncertain Outlook - Quebec’s mining taxation regime continues to perplex and deter investors in the province

    Once hailed as one of the most attractive jurisdictions for mining investment in the world, Quebec has suffered from changes to its taxation regime in recent years that have contributed to the province losing its investor appeal and dropping 11 places in the oft-watched Fraser Institute survey since 2009/10.Since 2010, Quebec has introduced two significant changes to its mining taxation regime. The province increased mining duty rates by 4% to 16% of annual profits, and introduced a mine-by-mine approach which uses profits from individual mines rather than across operations held by a single owner.

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  • Taxation of the Natural Resources Industry in Quebec: The wave of changes still goes on

    On December 20, 2013, the Quebec Department of Finance and the Economy issued Information Bulletin 2013-14 (the “Bulletin”), announcing inter alia changes to various tax measures specifically applicable to the natural resources industry.The Bulletin is certainly important in respect of both the income tax for mining corporations and the “super” tax deductions to which an individual who subscribes for flow-through shares issued by a corporation which, directly or indirectly, conducts exploration activities from the surface of the soil in Quebec is generally entitled to.The Bulletin also makes public the intention of the Government to make some changes to those already announced in the context of the proposal for the revision of the Mining Tax Act unveiled on May 6, 2013 through Information Bulletin 2013-4.INCOME TAX FOR MINING CORPORATIONSA qualified mining corporation which incurs certain exploration expenses in Quebec is eligible to a refundable tax credit under the Taxation Act (Quebec). The Tax Credit relating to Mining, Petroleum, Gas or Other Resources (the “Resources Credit”) may reach, in certain cases, 38.75% of the eligible expenses, particularly where a qualified corporation that does not operate a mineral resource or an oil or gas well in reasonable commercial quantities incurs certain exploration expenses in certain northern areas. Furthermore, to obtain the highest Resources Credit rate (the “Preferential Rate”), the qualified mining corporation must not be related to a corporation operating a mineral resource or an oil or gas well in such quantities.The following table shows the Resources Credit rates that currently apply depending on the various applicable parameters.In the March 20, 2012 Budget Speech, rate reductions for the Resources Credit1 were announced regarding expenses incurred after December 31, 2013: a 10% reduction for corporations not operating any natural resource and 5% for the other corporations.It was furthermore stated that such corporations could benefit from an increase of the Resources Credit equal to such rate reduction in exchange for an option to the Quebec government to acquire an equity stake in the development. However, the terms of such option to acquire an equity stake in the development have not to date been unveiled by the Government.Acknowledging that the international context is less favourable to investments in mining exploration, which may among other things be explained by a decrease in metals prices, the Government announced the postponement to January 1st, 2015 of the coming into force of these modifications to the Resources Credit.The Bulletin also contains two technical modifications which will restrict the scope of the notion of “qualified corporation that does not operate a mineral resource or an oil or gas well in reasonable commercial quantities” for the purposes of the Resources Credit.First, the notion of “related corporation” used to determine whether there is operation or not of a resource for the purposes of such notion will be replaced with the notion of “associated group”, similar to the notion used in respect of the Tax Credit for Investments relating to Manufacturing and Processing Equipment.2It is also intended to replace the condition that the qualified corporation must not operate a mineral resource or an oil or gas well in reasonable commercial quantities with the requirement that no gross income be earned from the operation in reasonable commercial quantities of such a resource. Thus, corporations which indirectly earn gross income derived from the operation of a mineral resource, under the form of royalties for example, will henceforth no longer be eligible to the Preferential Rate, even if they don’t operate any natural resource and are not associated with any corporation that operates such a resource.A corporation which earns gross income of any nature whatsoever (including royalties) from the operation of a mineral resource or an oil or gas well in reasonable commercial quantities will therefore “taint” all the other corporations of its associated group and no corporation of the group will be eligible to the Preferential Rate.It is intended that the amendments pertaining to the Resources Credit will apply to the taxation years beginning after December 20, 2013. It should be noted that these new rules will also apply mutatis mutandis to partnerships.THE FLOW-THROUGH SHARE REGIMEThe Quebec legislation provides for two additional deductions of 25% each (the “super” deductions) for individuals who subscribe for flow-through shares, the first one respecting some exploration expenses incurred in Quebec and the second one when the exploration expenses in question are surface exploration expenses. At the present time, the eligibility for these “super” deductions is among other things conditional upon the issuing corporation not operating or having operated a mineral resource or an oil or gas well in reasonable commercial quantities at the time it incurred the expenses and throughout all of the preceding 12 months. In addition, the eligibility to these “super” deductions is conditional upon the issuer not controlling a corporation that operates such a natural resource or being controlled by such a corporation.It is stated in the Bulletin that changes similar to those pertaining to the Resources Credit will be made to the flow-through share regime. More specifically, the notion of “operation of a mineral resource or oil or gas well” will be replaced with the requirement that no gross income be earned from the operation in reasonable commercial quantities of such a resource.Furthermore, like the modification respecting the notion of related corporations in the context of the Resources Credit, the notion of “control” will be replaced with the broader notion of association, i.e. that of the “associated group”.A mining corporation will thus no longer be allowed to issue flow-through shares providing an entitlement to the “super” deductions if it is associated with another corporation (for example, a sister corporation) which derives gross income from the operation in reasonable commercial quantities of a mineral resource or an oil or gas well.The modifications to the flow-through share regime are intended to apply to shares issued after December 31, 2013.MINING TAX ACTThe Government also announced through the Bulletin its intention to ease the restriction applicable to the depreciation allowance which may be claimed in the computation, for mining tax purposes, of the annual earnings from a mine. This restriction generally provides that no amount on account of depreciation may be deducted in respect of class 4 property (which is essentially comprised of property acquired by an operator after March 30, 2010) if the undepreciated capital cost (“UCC”) of its classes 1 to 3 is greater than zero. In other words, an operator must fully amortize, for mining tax purposes, the property it acquired on or before March 30, 2010 before being allowed to claim a depreciation allowance in respect of its class 4 property.The easing considered by the Government would allow an operator to claim, in the calculation of its annual earnings from a mine, an amount on account of depreciation allowance in respect of class 4 property provided it also deducts the maximum amount of the depreciation allowance relating to its class 1, 2 and 3 property used in the operation of this mine. There would no longer be a requirement that the UCC of the classes 1 to 3 be equal to zero before being able to obtain a depreciation allowance in respect of class 4 property.The Bulletin states that this measure will be declaratory, which means that the Government will apply it as if it had been passed at the same time as the coming into force of the restriction in 2010. Accordingly, to the extent that the four-year limitation period from the date of the first assessment for a fiscal year is not expired or that a waiver was sent in due time, an operator may amend the return filed in respect of that fiscal year if the restriction on the depreciation allowance applied to it.It should be noted that the Bulletin further indicates that the easing for class 4 property would apply mutatis mutandis to class 4A property. However, the creation of class 4A (which would include some items of property currently included in class 4) is provided for in Bill 55, which has not yet been passed by the Quebec legislature.It is worthwhile to remember that Bill 55 was not warmly received by the opposition parties and that, accordingly, many amendments may still be made to it. This reform of the Quebec mining tax has never been detailed or even announced by the Government in a budget. In this very particular context, taxpayers should remain prudent in respect of the amendments to the Mining Tax Act announced on May 6, 2013 in Information Bulletin 2013-4 and included in Bill 55, their coming into force being subject to the Quebec legislature passing the Bill in question.CONCLUSIONThe decision to postpone for one year the decrease of the Resources Credit rates seems to indicate that the decline in mining investments in Quebec, particularly respecting mineral exploration activities, has continued during the last few months and that the Government seeks to stimulate this sector after a 2013 filled with uncertainty and turmoil.As to the restrictions pertaining to the eligibility to the Preferential Rate and the “super” deductions, these technical changes were foreseeable since the underlying tax policy has always been to direct this kind of tax incentive toward corporations that lack access to the necessary funds to finance their exploration activities. However, it remains that these restrictions could have unforeseen consequences on the financial projections of some mining corporations and the representations made to Quebec investors in the context of the issuance of flow-through shares._________________________________________1 With the exception of the 15% Resources Credit with regards to the eligible expenses related to renewable energy and energy savings.2 While the concept of “related persons” generally refers to legal control, the concept of “associated corporations” is wider. For example, two corporations are associated if one has the de facto control over the other, but they will not necessarily be related if there is no de jure control.

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  • Changes to the Mining Act (Québec)

    On December 10, 2013, Bill 70, An Act to amend the Mining Act, was passed by the National Assembly of Québec. Except for select provisions, the new Act took effect immediately. Amendments to the Mining Act have been in the making for some time and Bill 70 was the last iteration of what has been a lengthy process. A number of the more interventionist – some might say, extreme – measures found in earlier bills have been dropped. The new Mining Act, however, has a distinct “societal” and statist focus.For one thing, the structure of mining related rights has undergone significant changes. “Mining exploration licences” and “exploration licences for surface mineral substances”, among others, are now a part of Quebec mining history. We are left with “claims”, “mining leases”, “mining concessions” and “leases to mine surface mineral substances”. Persons wishing to prospect still must hold a prospecting licence.The new Act is, in part, oriented toward people living in areas where mining activities are carried on. A 60 day notice of staking must be given where work is to be carried on within the boundaries of a municipality and an advance notice of 30 days must be given to the municipality prior to commencement of work. Leaseholders will now be required to establish “monitoring committees” to “foster the involvement of the local community in the project as a whole”. The committees must be set up within 30 days after the lease is issued. The committees are to include a representative of business, First Nations (if applicable), the municipal sector and the public. A majority of the members must be independent from the lessee. All must be from the area in which the work is to take place. The Act is silent as to the authority of these committees. Also, any person wishing to conduct metal mining operations where production is to exceed 2,000 metric tons per day, will be required to hold a public consultation in the region where the property is located and send a report thereon to the Minister of Natural Resources and the Minister of Sustainable Development, Environment and Parks. It is not clear what the impact or implication of this measure is.When entering into a lease, the Government may, “on reasonable grounds”, require that the economic “spinoffs” - whatever these are - within Quebec “be maximized”. These terms are exquisitely vague. They will doubtlessly give rise to difficulties in attempts to procure leases from the Ministry of Natural Resources. In addition to these new hurdles, prior to the start of “mining operations” (presumably, extractive activities), and every 20 years thereafter, the lessee must send the Minister a scoping and market study “as regards processing in Québec”.Indeed, s.17 of the new Act states that “sustainable development” is a legislative objective as is development of “homegrown expertise in mineral resource exploration, development and processing”. The application for a mining lease must also be accompanied by a survey of the land parcel involved, a report on the nature, extent and probable value of the deposit, a feasibility study together with a scoping study and market study “as regards processing in Québec” (s. 101). The Act also says (s.119) that the Minister may require that an agreement be entered into with the grantee for the purpose of maximizing economic spinoffs within Quebec. Therefore, the notion of economic spinoffs is mentioned three times within the provisions dealing with the granting of mining leases. It is a clear indication as to the intentions of the current government; however, the fact that it crops up so frequently could give rise to interpretational difficulties. Further, an undue emphasis on this aspect may very well cause promoters of new projects to consider proceeding with great caution only.There are a variety of other provisions which may cause concern. For example, detailed reports on production are to be filed with the Minister annually; special declarations are required in respect of the discovery of or exploration for uranium; five percent of the land subject to a lease is to be reserved to the State “for public development purposes”; and very specific production information (including quantity and value of ore produced, royalties and contributions paid by the holder) as well as rehabilitation plans are to be disclosed publicly on an annual basis.The foregoing does not cover all the changes found in the new Act. New s. 232.2 requires that a rehabilitation plan be submitted and approved prior to commencement of operations. This may have a substantial impact on open pit mining operations. A lease will not be granted unless a rehabilitation and restoration plan is approved in accordance with the Act and a certificate issued pursuant to the Environment Quality Act. Others include the requirement that guarantees be put in place to cover the cost of rehabilitation before work commences, that such work must start within three years of cessation of operations (or sooner) and the amount of penalties which may be imposed for offences under the Act have been significantly increased.Industry participants may be well advised to carry out detailed due diligence on the attitudes of the local municipalities and First Nations in regions where they propose to stake. They may also wish to determine in advance, to the extent possible, the potential costs of rehabilitation, the possibility of carrying out processing or refining activities in Quebec and the costs thereof before investing in exploration. The new Act has increased the overall obligations of explorers and miners in Quebec and, as such, the costs associated with mineral exploration and extraction. These must be considered together with the relatively new increased royalty burden operators now face and the increases in mining taxes that will now be payable when production begins.In general, the nature of the changes made should cause explorers and operators to carefully consider new projects they may wish to initiate in Quebec.

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