Quebec incentives provide hope for mining ventures

Despite the current bleak conditions for junior mining in Quebec, some observers of the province’s mining scene have surprisingly bright forecasts for the future.

“Quebec is one of the better places for junior companies to be exploring in,” said Paul Carmel, a mining analyst at securities firm Levesque Beaubien Geoffrion in Montreal. “I wouldn’t be writing obituaries for Quebec.” Mining is a cyclical industry, Carmel said. Although the mining scene in Quebec is in “a bit of a trough, it’ll come out of its trough and flourish once again,” he said.

Activity is much slower than in previous years, admits Pierre Boudreault, president of 6-year-old Corpomin Management Inc., a Montreal mining management company with five juniors under its wing: VSM Exploration (TSE), MSV Resources (ME), Nova-Cogesco Resources (TSE), Cache Explorations (ME) and Canchrome Mines (ME).

Despite the slow activity, Boudreault said investors maintain some interest in solid junior-mining companies. Several arrangements for small-scale junior financing under the Corpomin umbrella will be completed this fall, he said. To the disappointment of many, the Quebec government, in last spring’s provincial budget, extended the deduction on flow-through shares by two years instead of increasing the deduction. (For example, the Quebec Prospectors Association had been seeking an increase in the 166.6% tax deduction for surface exploration to 200%.

But Boudreault said Quebec still has the best incentive program in Canada for mining investment. Carmel agrees, saying that Quebec’s incentives are quite advantageous to investors.

Carmel noted that buying shares in a junior eligible for the Quebec Stock Savings Plan (QSSP) is not like the old days of 1987-88, when few people knew anything about the listed companies. As a result, he said, buying into many of the QSSP stocks at the time was akin to buying lottery tickets. In the last provincial budget, the provincial government also came up with a $5-million fund for junior companies, the “Programme de soutien de l’exploration miniere au Quebec.” The program is administered by SOQUEM, the Quebec government’s mining exploration arm.

Admissible are Quebec-based juniors with a minimum of three employees who have invested a minimum of $300,000 in exploration since 1988. A maximum of $300,000 per company per project and a maximum of $900,000 per group of companies is available for financing.

Boudreault said two of Corpomin’s companies have already signed financing deals worth $400,000 under the program and are seeking additional financing to reach the $900,000 ceiling. The $5 million program is helping the juniors, he said.

“All our companies have good programs,” Boudreault added. “Things will pick up as soon as the recession is over.”

However, Terry Ortslan, a mining analyst at securities firm Loewen Ondaatje McCutcheon in Montreal, called the government’s $5 million aid program “a joke” and suggested that any good news about the juniors is wishful thinking. He said Quebec’s junior-mining scene will be “fairly poor and dismal” for the next 12-18 months. “There isn’t much enthusiasm on my point. These are not good times,” he said.

Without cash flow and with a decided lack of interest from the majors, the best thing juniors can do is sit tight and try to ride it out, he said. However, juniors that have overextended themselves won’t survive. The juniors “are being squeezed on all fronts,” he said.

Metal prices have been unexciting and banks are unenthusiastic about providing financing to the juniors. In addition, Ortslan said labor costs and capital costs have also gone through the roof in recent years; as a result, it is not only expensive to find a mine, it is also expensive to put a mine into production. “It’s very difficult to make a case for the future,” he said. Ortslan said the current situation is worse than the lows the mining industry faced in the 1970s and “the markets won’t turn around on a dime.” But Carmel is more optimistic. Although gold and base metals prices are not conducive to investment, Carmel predicts that situation will change. If zinc prices improve to what they were about 18 months ago, a junior such as VSM will be “back into vogue,” he said.

(VSM was also recommended earlier this year by securities firms RBC Dominion Securities, Midland Walwyn and Richardson Greenshields,

as well as investment publications The Canadian Investor and the North American Gold Mining Stock, based in large part on favorable reviews of the Grevet property, near Quevillon, Que.)

Carmel also said Quebec remains a contender on the gold scene. He predicts that by the end of next year, gold will start seeing renewed action. “The junior situation is very dependent on some of the seniors,” Carmel said. One bright point is Cambior (TSE), a gold producer many of the juniors look to, Carmel said. Cambior is well managed and growth-oriented and is maturing from an intermediate to a large player, he said. Success of a firm such as Cambior augurs well for juniors, he said.

Daniel Kucharsky is a freelance writer from Montreal.