Global Business Reports
When the Plan Nord was introduced by the Liberal Party of Quebec in 2011, it was touted by the government as “the project of a generation”. Two years later, however, the Plan Nord is mostly mentioned in inquiries about what has happened to it. A key potential rail service linking much of the north with the Port of Sept-Iles, and funded by Canadian National Railway (CN) and Caisse de Depot (the Quebec pension fund), has been put on hold. Mining companies operating in the region have yet to agree on an alternative.
In May, the Parti Quebecois (PQ), Quebec’s current ruling party, introduced a new plan, ‘North for All’, which has been heavily criticized for being a watered-down, noncommittal version of the Plan Nord with no definite budget. For Quebec’s miners, this is just one more worry added to a list that already includes regulatory and tax reforms and a global downturn in the industry. Financing has all but dried up at home, and now Quebec’s project owners are stretching their hands abroad.
It seems they are in luck, as Asian mining firms, particularly in China and India, are scouring the globe for new projects. They are driven by a desire to secure resources for growing populations to convert into tools for growing economies. Iron ore, the main component in steel, is of particular interest because of its role in urbanization. At the moment, China’s primary foreign steel suppliers, Brazil and Australia, produce large quantities of high grade ore that needs little refining. Even so, the volatility of the commodities markets has impressed upon Asian firms the importance of diversifying, and increasing numbers are looking to Quebec.
Although Quebec’s regulatory uncertainty and proposals for higher taxes may raise the threshold for success in the province, the global context matters. For Chinese and Indian investors used to opening mines in countries where poverty and unrest are endemic and civil war a fresh memory, Quebec appears to be a bastion of stability. In the current climate, there is little competition from Canadian investors who would otherwise have several ‘home field advantages’.
There have been concerns raised about the prospect of Asian companies moving into Quebec, but most of them are overstated. A common fear is that companies will import undesirable practises from Chinese-owned projects in Asia and Africa, such as micromanagement or the importation of large amounts of cheap labor. The case of Canadian Royalties, an exploration firm recently acquired by Shanghai-listed Jilin Jien Nickel Industry Co, is a shining example of the evolution of Chinese management methods to fit the Canadian environment. “What will make our project succeed where other Chinese owners abroad have failed is Jilin Jien’s approach and philosophy,” says John Caldbick, CEO of Canadian Royalties. “They basically say, ‘It is our company, but it is your company too. We finance it, but you run it.’ They do not get involved in the day-to-day operations.”
Globalization and increased cross-cultural exchange help more Asian investors gain awareness of Canadian modes of doing business. To this end, Raymond Chabot Grant Thornton (RCGT), a leading Quebecois accounting firm for the mining sector, conducts monthly visits between Montreal and Beijing partners. Quebec has much to learn as well. Some Asian companies, such as India’s Tata Steel, are already well-established leaders in the global mining industry and have the ability to bring a wealth of knowledge, experience, and best practises to the Quebec market. Tata Steel’s new Quebec-based subsidiary, Tata Steel Minerals Canada (TSMC), plans to be a leading employer of First Nations communities in the vicinity of its project site in the Labrador Trough and will run training workshops that draw on its global expertise.
Another major benefit Asian partnerships can bring to Quebec’s miners is the deeper integration of the province into the global mining value chain. Major off-take agreements guarantee a market for output and early financing in exchange for equity. Agreements between Alderon Iron Ore Corp and Hebei Iron and Steel, and Blackrock Metals and Prosperity Minerals, are two examples. Blackrock, which owns an iron and vanadium property south of Chibougamau, has even strengthened links with Middle Eastern supply and demand markets, and gained valuable engineering expertise, by forming an equity partnership with an Omani oil company.
There is, however, one concern, pointed out by past CIM president Rene Dufour, that merits consideration among Quebec’s miners and lawmakers alike. Asian investment can revitalize Quebec mining under difficult conditions, but without proper precautions the province’s industry may become trapped at the bottom of a crowded value chain. If Quebec companies and the provincial government do not make efforts to transform concentrates at home, Dufour warned in an article in CIM Magazine, the province risks having to ship Asian-owned output directly to processing facilities in other countries and losing out on employment in one of the highest value-added roles in the industry.
Quebec, Dufour argued, has the expertise to capture market share in transformation, and should establish “a $25 million fund” to boost local iron ore processing. The PQ recently tabled a discussion of Bill 43, which would require all Quebecois mining firms to conduct feasibility studies for processing plants. It has been severely criticized by mining executives for burdening firms that already suffer from tight margins, but the bill could go a long way to ensuring that Asian investment in Quebec is harnessed for sectoral upgrading.
As financiers on Bay Street and Rene Levesque Boulevard close their doors to Quebecois miners, Chinese and Indian executives are chartering planes to Val d’Or and Chibougamau. The Wuhan Iron and Steel Corporation (WISCO) has compensated for Plan Nord’s faltering by putting billions of its own dollars into northern infrastructure. The current crisis, therefore, sets up an interesting crossroads for Quebec, giving the province’s miners a major opportunity to look outward and forge supply and demand links with a vast, wealthy continent hungry for minerals. The real test for Quebec, however, will be whether it can use Asia’s appetite to feed its own long-term development.