Why Québec is a hot place for exploration

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                  Why Québec is a hot place for exploration
                           Jean-Louis Caty and Sylvain Lacroix
      (Ministry of Natural Resources, Wildlife and Parks of Québec – Mine Sector)

           Speech to the Prospectors and Developers Association of Canada
                            2004 International Convention

Slide 1

Thank you mister chairman. Good morning everyone.

On behalf of Mr. Jean-Louis Caty, Associate Deputy Minister for Mines at the Ministry of
Natural Resources, Wildlife and Parks of Québec, I would like to thank first the PDAC
for this opportunity to show that Québec has a cold and snowy season, but a favourable
investment climate which allows mining infrastructure to grow, as is the case herein for
the Raglan nickel-copper mine, located near the northernmost tip of Québec, and
hopefully also for diamond in the near future.

Slide 2

Is Québec a hot place for exploration?

According to the Metals Economics Group, exploration is well concentrated worldwide,
with more than 1500 million dollars US allocated in the top ten countries which
accounted for about two thirds of worldwide exploration budgets in 2003.

Canada ranked first in 2003, with 471 million dollars US or about 20% of worldwide
budgets, and was followed by Australia, United States, South Africa, Brazil and Peru.
With an amount of US$106 M in 2003, that accounts for 23% of exploration
expenditures incurred in Canada, Québec would therefore come in seventh, ahead of
Chile, Mexico, Russia and Argentina.

In contrast to the evolution of world budgets, exploration expenditures in Québec rose
by 40% over the last four years. Thus, Québec’s share of worldwide expenditures
increased to 4.4% in 2003, from 2.4% in 2000, while its rank climbed from tenth to

Slide 3
                       st   nd     th
Québec also ranked 1 , 2 and 4 among fifty mining jurisdictions in the world for its
attractive investment climate, according to the three last Fraser Institute annual surveys
of exploration companies. For instance, Québec was the only Canadian jurisdiction to

be ranked each year in the top five most attractive jurisdictions, along with Chile and

Québec has earned these ranks, thanks to its attractive mineral potential (that accounts
for 60 percent of the total rating of the Fraser Institute) and its government policies

Slide 4

In the remainder of my talk, I will highlight ten good reasons that may explain why
Québec is a hot place, and hopefully that will also make you consider exploring in

To show its attractive mineral potential, I will first describe that it had a steady rate of
major discovery, that it was a major past producer with world-class deposits, that it is a
rich and diversified current producer, and that it today remains a vast, little-explored and
open territory with great geoscience data and system.

To describe its enviable business climate, I will highlight its reliable and modern mining
regime, its great access and overall cost leadership, its great access to capital and
generous tax incentives and the presence of partners for a sustainable development.

Slide 5

On the upper histogram, only the twelve base metal mines with over 10 million tonnes of
ore are shown at the time they were brought into production, while the lower histogram
shows the thirteen gold mines with over 1 million ounces.

Notice that mine start-ups were regularly spread out over time. Moreover, five base
metal and six gold mines have been brought into production over the last twenty-five
years, which indicates that this rate of major discovery even accelerated during the last
25 years.

Slide 6

This slide shows the evolution of the annual mining production value since 1915 in
today’s dollars, shown here by the grey-filled area. Québec’s mining production
significantly rose until 1965, and since that time, it remains more or less at about a 4
billion dollar level although this value varies mostly following metal prices.

The bars represent today’s gross value of some major base metal and gold deposits
that were mined in Québec during this time interval and which are shown when they
were brought into production. These deposits are:

- The Horne mine with a gross value of 9.9 billion dollars,
- The Sigma and Lamaque mines,
- The Chapais-Chibougamau mining camps,
- The Matagami camp,
- The Selbaie mine, as well as the Bousquet and Doyon mines,
- The Dumagami-LaRonde mine,
- The Raglan mine has a value of over 14 billion dollars at current nickel prices.

Here again, notice that these world-class base metal and gold deposits have been
steadily brought into production during the last century. The importance of these major
deposits can not be overemphasized, since these together account for about 25% of the
total value of the mining production in Québec since 1915, at 220 billion dollars.

Slide 7

Today, Québec is:

- The second most important Canadian producer of zinc and gold,
- The third producer of copper and nickel,

In addition to a major base and precious metal producer, Québec is also:
- The second Canadian producer of iron,
- The first and only producer of niobium, ilmenite and titanium slag, for which
substances it is among the top two world producers, as well as
- A major producer of both aluminium and magnesium although the mineral resource
comes from overseas.

For instance, 30 different substances are produced in Québec and both mining
extraction and metal industries in Québec correspond to billion-dollar businesses, with
hundreds of establishments and several thousand workers.

Copper, gold and zinc mostly come from northwestern Québec, iron and ilmenite from
Québec’s North Shore region, niobium from the Saguenay-Lac-Saint-Jean area and
nickel from Ungava. But still, few mines are located in the northern part of Québec,
which remains little-explored despite its great mineral potential, as shown by the recent
opening of the Troilus gold mine and the Raglan nickel-copper mine.

Slide 8

This slide shows currently active exploration mining titles in Québec’s landmass that
covers more than 1.5 million square kilometres and corresponds to about one sixth of
Canada, the 2 largest country in the world.

Québec’s territory remains little-explored. For instance, a recent PDAC study concludes
that most flow-through share discoveries in Canadian jurisdictions since 2000 have
been made in Québec, and that six of these seventeen discoveries could go into
production. New diamond and nickel potential has notably been revealed in its northern
part. Since 2001, 17 diamond-bearing kimberlites have been discovered in the Monts
Otish area, ten of which by Ashton and SOQUEM. Such discoveries are significant
enough, in term of size, distribution, diamond content and weight, to explain the recent
strong rise in diamond exploration expenditures which reached more than 16 million
dollars in 2002. Diamond claims (in green) now cover a greater surface area than those
for all other substances combined (in orange). The Cape Smith Belt is also the site of
intense exploration following some interesting copper, nickel and PGE discoveries by
Canadian Royalties south of the Raglan mine, and by Anglo American and Knight
Resources in its western part.

The lower diagram shows how exploration mining titles rose in the last three years in
Québec with an average of 45,000 claims registered each year, that is three times more
than the average of the previous 10 years.

Despite this frenzy of activity, all currently active exploration titles still cover less than
5% of the total surface area of Québec’s landmass.

Slide 9

Québec’s mineral potential is even more attractive and accessible given the existence
of SIGÉOM, the geomining information system that contains all digital geoscience data
sets compiled over the past one hundred years, worth more than 5 billion dollars.
Moreover, this information is easily accessible on the Internet, at anytime, from
anywhere in the world.

This information is constantly upgraded, with new data worth 68 million dollars added
each year, from both assessment work reports submitted by mining companies and new
geoscience surveys by the Ministry. Over the last ten years, two major mapping and
geoscience programs have been lauched (as shown by the dashed areas):

- The Near North Program, with 10 million dollars up to now
- The Far North Program, with 26 million dollars up to now

Slide 10

Québec also has an enviable business climate, and one of its major assets is its mining
regime, based on the principle of free mining. For three years now, claim acquisition
takes place in the form of map designation based on pre-defined land parcels, which
are granted on a first come, first served basis. Such claims are undisputable, and the
titleholder obtains the exclusive right to search for all mineral substances, along with the
guarantee to obtain a mining title in the event of a discovery. The mining title
management system, GESTIM, is free and available from the Internet. From anywhere,
at anytime, it is thus possible to acquire, consult and manage a portfolio of mining titles.

Moreover, the cost of designating a new claim of 50 hectares at 80 dollars corresponds
to about $1.6 per hectare. That’s nearly seven times less expensive than the previous
acquisition and recording fees to get three former claims staked in the field covering the
same surface area, at $10.6 per hectare.

Slide 11

According to a recent KPMG study, the cost to run a business is lowest in Canada
among eleven countries, and in Montréal (the largest city in Québec) among 30 cities
with more than two million inhabitants. These conclusions remain valid for the mining
sector, given that the profitability of the mining industry is very sensitive to the main cost
components used by KPMG, which are labour, facility, utility, financing and taxes.

For instance, Québec’s geographical position allows great access and transportation
facilities, with:
- 70,000 kilometres of roads that provide links with all of northeastern and central North
- A railway network with daily links to numerous major cities,
- More than ten sea harbours open year-round thanks to the St. Lawrence Seaway,
which provides access to both central North America and the Atlantic Ocean,
- And three international airports near the cities of Montréal and Québec.

In terms of power, Québec annually produces 207 billion kilowatt-hours that is 8% of
worldwide hydroelectric power production, and comes in 4th worldwide in this regard,
behind the United States, China and Brazil. Hydroelectric power is an abundant, clean
and renewable source of energy, and industrial rates in Québec are among the lowest
in the world, at about 3.7 cents per kilowatt-hour. Natural gas is also available in most

Slide 12

Since access to capital is a constant concern for exploration, the flow-through share
regime is a unique and effective measure in Canada. With this regime, a company may
issue flow-through shares, incur Canadian exploration expenses and forego CEE
deductions to an investor, who may then apply for tax deductions and tax credits at both
federal and provincial levels, to get in Québec a total deduction of $671.

On the bottom part of this slide, you can see that the Québec regime is the most
generous of all mining jurisdictions in Canada, with a net acquisition cost of only $329
for each thousand dollars invested in flow-through shares. This compares to an average
of about $440 for all Canadian jurisdictions.

Slide 13

Québec is also well equipped with both venture funds and an exploration partner which
allow an easier access to capital, namely …

- SIDEX, an investment fund with an initial capital of $50M to provide capital to
exploration companies.
- SODEMEX, a limited partnership with a subscribed capital of $44M to invest in junior
and mining companies involved in Québec and a portfolio market value of over $100 M.
- SOQUEM, a Crown corporation which represents an exploration partner of choice with
its annual budget on the order of $15M. SOQUEM offers a solid expertise as shown by
several past discoveries, complete data sets, and a portfolio of high-potential projects.

Slide 14

In order to stimulate exploration, the Québec government has recently introduced
important fiscal measures. Here are three examples showing what is the net cost of
spending 100 dollars in mineral exploration in northern Québec.

- A junior company would receive a credit of 30 dollars from the refundable tax credit for
resources, with a bonus of nearly 4 dollars given the location in northern Québec, as
well as a credit on duties of 12 dollars, for a total tax savings of over 45 dollars, and a
net cost of roughly 54 dollars.
- Since its refundable tax credit will rather be of 15 dollars, a producing company, whose
mining operations are not located in Québec, would receive a total tax savings of 30
dollars, and a net cost of 69 dollars,
- A producer that pays income tax and capital tax in Québec may receive an additional
non-refundable credit of 26 dollars, on top of the same credits as the previous example,
for a total tax savings of 57 dollars, and a net cost of 43 dollars.

Notice that these credits apply to all companies, most major substances, all of Québec’s
territory, most off-minesite expenditures, and that there is no maximum for a company
or the whole industry.

In Canada, only Yukon has a similar tax credit for exploration.

Slide 15

To compare the mining tax regime of different jurisdictions is a difficult task, however if
only the most significant aspect should be compared, then it should be the corporate tax
rate. And in this regard, Québec offers the lowest tax rate for large corporations in
Canada, at 9%, a tax rate that may reach 17% in other Canadian jurisdictions.

Furthermore, the mining duties regime in Québec is also very attractive, namely with its
competitive 12% rate, and the presence of many duties holidays and allowances
designed to lower mining profit…

Slide 16

Finally, here are a few examples of the partnership culture that mining companies may
find in Québec for sustainable development initiatives.

Québec is the first Canadian jurisdiction to complete the rehabilitation of its State-owned
mining sites, following a $20 M state program.

Also, partnership with native peoples for a sustainable mining development is already a
reality in northern Québec, as shown by:

- The Paix des Braves and the Sanarrutik agreements, between Québec and
respectively the Crees in the James Bay area, and the Inuit in Nunavik, to ensure
economic, social and community development in these regions,
- Also, 150 native workers already account for 25% of total workforces at the Troilus &
Raglan mines in northern Québec,
- And three Native Mining Funds (with the Cree, Inuit and Innu peoples) already
encourage and facilitate the participation of Native communities in mineral exploration

Slide 17

In short, if Québec is such an attractive place for exploration, it is mainly because it
offers what the industry looks for in this business.

Exploration is a high-risk and cyclic business, and so the industry looks for a high
reward and a low-risk global setting. In this regard, Québec offers:

- A rich and diversified mineral potential
- A vast, little-explored & open territory
- A dynamic economy & stable context
- Great access, infrastructures & energy
- Best practices, sustainable development & reliable mining regime

Exploration is also capital intensive and access to capital and low exploration costs
represent major concerns for most companies. In this regard, Québec also offers a lot

- Canada is a great mining capital market
- Québec has the most generous flow-through share regime and several venture capital
- Easy, efficient and low-cost access to mining titles & geoscience data
- Best fiscal support
- A strong partnership culture with SOQUEM, active junior companies, native peoples
and the government.

Slide 18

I hope my talk allowed to describe some of the reasons why Québec offers a favourable
mining investment climate from exploration to mine development, and hopefully make
you consider exploring in Québec in the near future.

If we can be of any help in this regard, come see us at booths number 224 and 225.
I hope to meet you there. Thank you very much.

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