Mining is one of Canada’s main industries, and it has a long and successful history. The country is resource rich and hosts many mines that produce a wide variety of minerals and metals, including gold, coal, iron ore concentrates, potash, copper, nickel, platinum group metals, diamond, silver, zinc, molybdenum, cobalt and uranium. Canada also hosts advanced mineral projects for rare earth elements, lithium, graphite and vanadium, is the home to numerous junior mining companies that explore for minerals in Canada and worldwide, and the Canadian financial markets provide a large part of the funding for such junior companies.

Tax and securities laws provide significant incentives for investment in the mining industry in Canada, and the stock exchanges are open to facilitating the listing and financing of junior and senior mining companies.

Canada also boasts a large concentration of professionals in the technical, engineering, legal, accounting and management fields that help sustain a robust mining industry.

This practice guide will highlight these features, many of which are unique to the mining industry in Canada.

Canada’s legal system is a combination of common law and civil law. The common law applies in all provinces and territories of Canada, except for Quebec, which is the only province with a civil code.

As Canada is a federalist state, the powers and responsibilities with respect to mining are constitutionally allocated between the federal Parliament (with certain powers allocated to the territories through statutory devolution, as discussed below) and the country’s ten provincial legislatures.

The provincial legislatures have the power to enact laws in relation to provincial public lands, mineral titles and the exploration and extraction of minerals within their provincial jurisdictions, including the development and operation of mines, the conservation of mineral resources and environmental protection; they also have the power to enact laws relating to the export of minerals from one province to another within Canada, provided they do not discriminate in favour of the producing province.

The provincial jurisdiction with respect to mining has resulted in substantive mining regimes that are fairly consistent across provinces. However, these provincial powers are rarely codified in a single provincial statute.

Canada’s federal Parliament has the power to make laws in relation to minerals and mining on federal lands, and also makes laws in relation to mineral exports and imports, nuclear energy and minerals used to generate nuclear energy, inter-provincial transport of dangerous goods, the use of explosives, navigable waters and, perhaps most importantly, the protection and conservation of the environment as it impacts federal jurisdiction, including migratory birds, species at risk and fisheries resources and their habitat.

Canada’s three territories (Yukon, Northwest Territories and Nunavut) are under federal jurisdiction and are governed by territorial governments created by federal statute.

Property interests with respect to surface and subsurface minerals are generally severed in Canada. This is largely a function of the historic disposition of land in Canada. Generally, all lands were historically owned by the Crown until title was granted to settlers or municipalities by Crown grant. A separate fee estate consisting either of only surface rights, of both surface rights and mineral rights, or solely of mineral rights, could be created by Crown grant or by a grant of the fee simple estate, with or without reservation by the Crown of the mineral fee. Near the end of the 19th century, the Crown adopted a practice of reserving the minerals from fee simple grants. Federal and provincial legislation across Canada now provides that minerals are reserved from Crown land dispositions.

As a result, each Canadian province and territory has its own system of mineral tenure and legislation pertaining thereto, as well as its own procedures whereby mineral interests may be granted by the Crown and acquired by private legal persons. The Crown is the largest holder of minerals in Canada, both as fee simple owner of Crown lands and due to mineral reservations from historic Crown grants.

Section 109 of the Constitution Act, 1867 (the “Constitution”) vests ownership of Crown minerals situated in a province to the provincial Crown. Pursuant to Sections 92(13), 109 and 92A of the Constitution, the regulation of mineral tenure, exploration, development, mine operation and environmental remediation in the provinces is predominantly a matter of provincial jurisdiction.

Title to minerals located in Canada’s three territories, the territorial sea and continental shelves and federal lands (national parks, harbours, First Nation reserves) vests in the federal Crown, as discussed above.

Crown title to all Crown lands is subject to Aboriginal treaty rights, claims for Aboriginal title or other rights, and the provisions of any applicable land claim agreement.

The federal and provincial governments serve as grantor-regulator of mining activity. The federal government, the ten provinces and the three territories each have their own ministries, agencies or other governmental bodies that oversee the mining sector. Often, multiple agencies will administer separate facets of the mining business.

Examples of this engagement of multiple agencies are found in all provinces.

In addition, there are multiple federal agencies that regulate environmental aspects of mining activity, as described in 2.1 Impact of Environmental Protection and Community Relations on Mining Projects.

As noted above, mineral rights have a constitutional basis in so far as the rights and powers over their extraction have been constitutionally apportioned.

Mineral rights in Canada are a property right and can be broken down into three distinct categories.

The Right of Entry on Crown or Private Lands Containing Crown Minerals

Holders of mining claims have the right to enter upon, use, occupy and let down such part(s) of the surface rights of the claim as necessary for prospecting and efficient exploration, development and operation of the mines, minerals and mining rights therein. In all jurisdictions, compensation will be owed to existing surface rights owners.

Priority over Other Miners

Recording or registering a mining claim gives priority over other miners, so long as the claim remains in good standing. Where disputes arise between prospectors with respect to the recording, registration or priority of claims, inspections of the claims may be requested by a recorder or similar government official, and the recording of challenged claims may be appealed to a quasi-judicial officer or board.

The Right to a Lease and to Enter into Production

A mining claim holder is entitled, and has the exclusive right, to apply for a mining lease over the area of the claim, following the prescribed periods of assessment work. Such a mining lease grants the right to enter into production from a mineral deposit and, upon production, to take title to the minerals and to process and dispose of them for valuable consideration.

The granting of mineral rights will depend on the location of the minerals. Most mineral rights are granted by statute by the provincial government.

The provinces of British Columbia, Manitoba, New Brunswick, Newfoundland and Labrador, Ontario and Quebec, along with the three territories, have adopted some form of modified free-entry system, which allows individuals and corporations to obtain mineral rights by recording and/or registering (in the case of Ontario) mining claims on their own initiative on mineral lands deemed open for recording.

The free-entry system relates only to the limited acquisition of mining rights or temporary limited tenure by mining claim (referred to as a mineral claim in other jurisdictions). The acquired rights do not necessarily extend to actual permission for the industrial activities of exploration, development or mining, which remain subject to land use, environmental and other principles and laws and regulations. If a mining claim holder wishes to develop a mineral deposit on the land subject to the claim, they must usually apply for and obtain a Crown mining lease.

Alberta, Saskatchewan, Nova Scotia and Prince Edward Island have adopted the Crown discretion mining system, under which the provincial government, as owner of the mineral resources, has the discretion to decide whether and on what terms a person may prospect for minerals. Governmental approval of a prospector’s activities generally takes the form of a licence or permit. If a permit holder wishes to develop a mineral deposit, it must usually apply for and obtain a Crown mining lease.

Once recorded, mining claims allow a mineral explorer to claim a demarcated portion of available Crown lands as their exclusive area, solely for exploration for a specified period. Many jurisdictions in Canada have moved away from the physical staking of mining claims (requiring the placement of posts or other visible markers on the ground to indicate the claimed area). Instead, mining claims are acquired by selecting blocks of claims using an online mapping system, known as “map selection” or “map staking”.

Finally, applications to record a mining claim must be filed within a specified time with the applicable ministry or agency. The recording is designed to give public notice of the area held by the recorder/claimant.

The holder of a mining claim generally has the right to transfer or sell an interest in that claim freely without Crown consent (unlike other jurisdictions, where Crown consent is required to sell or transfer a Crown mining lease).

Security of tenure of a mineral claim is generally maintained through satisfying prescribed work requirements or payment in lieu thereof. The length of a mineral claim will vary across provinces. In British Columbia, a mineral claim is initially valid for one year. If work requirements are met, the mineral claim may be extended for up to ten years from the application date or on a year-to-year basis. If payment is made in lieu of work, the mineral claim may be extended a minimum of six months and a maximum of one year from the current expiry date. Mining leases are granted for terms ranging from ten to 30 years. Before proceeding to develop a mine, the holder of a mining claim will generally convert a mineral claim to a mineral lease, in order to avoid the annual upkeep costs related to a mineral claim.

Mineral title may be unilaterally terminated by the Crown, usually due to failure by the holder to comply with the applicable legislation or the conditions of the mining interest itself. For example, a mineral claim may be terminated if prescribed work has not been performed, or if reports have not been filed within the prescribed time. Termination, however, is not automatic.

Environmental Regulation

The development of mining projects in Canada is subject to environmental regulation at the federal and provincial levels, and requires, among other things, environmental impact assessments to be conducted prior to commencing operations, and sometimes even at various stages of development. The objective is to determine whether approval for a mining operation should be granted based on the project’s environmental impacts. Even where a mining project receives approval from the various environmental authorities, obligations will be imposed for rehabilitation and restoration activities on lands and the environment affected following the completion of the project or mine closure.

In Canada, environmental regulation is shared between the federal government and the provincial governments. Municipalities are also getting more involved in environmental regulation, and municipal by-laws and permitting requirements are important aspects of review prior to and while implementing a mining project.

The federal government has legislative jurisdiction over environmental matters of international and inter-provincial concern, as well as over fisheries, navigable waters and any dealings with federal lands, including First Nation reserves or national parks.

The provinces and the territories (other than Nunavut) are primarily responsible for matters within their boundaries and regulate, among other things, the extraction and transformation of natural resources (forestry, pulp and paper, mineral resources and fossil fuels) as well as other industries, such as renewable energy production (wind energy, hydroelectricity and cogeneration).

Environmental Licensing

Generally, mining regulators in Canada have three principal mechanisms for protecting the environment:

• the requirement for an environmental assessment before mine construction;
• regulation on the discharge of pollution into the environment; and
• a system of permits for activities that may impair the environment.

Environmental assessment

The environmental assessment process generally seeks to determine and predict the environmental impact of proposed mine development initiatives before they are carried out, and generates detailed environmental terms and conditions for mine construction and operation.

The federal Impact Assessment Act (IAA) came into force in August 2019 and requires the newly constituted Impact Assessment Agency of Canada (the “Agency”) to conduct an impact assessment (including environmental) if a federal authority provides lands or issues certain permits or approval of a project, or if a project otherwise affects matters under federal jurisdiction or is cross-boundary, including cross-provincial or territorial, or if a project is designated subject to impact assessment by the federal minister at its discretion. The IAA adds several new factors to be assessed, compared to the former Canadian Environmental Assessment Act, 2012, with the scope expanded beyond environmental effects of proposed projects to include matters such as:

• changes to the environment or to health, social or economic conditions and consequences thereof;
• measures mitigating adverse effects;
• the need for and alternatives to the project;
• Indigenous traditional knowledge;
• project contribution to sustainability;
• effects on the federal government’s ability to meet its environmental and climate change commitments;
• impacts on Indigenous rights, communities and cultures; and
• comments received from the public and from Provincial or Indigenous governments.

While the IAA may not necessarily apply to all projects in Canada, it will generally apply to most, including most major mining operations.

A 4-1 majority of the Province of Alberta Court of Appeal (Reference re Impact Assessment Act, 2022 ABCA 165) recently held that the IAA is ultra vires the jurisdiction of the federal government of Canada. This is the first case to address the constitutionality of the IAA. The Alberta Court of Appeal strongly held that the IAA is unconstitutional as it intrudes into the exclusive provincial jurisdiction and upon the provinces’ propriety rights as owners of their respective public lands and natural resources. The federal government has appealed this decision to the Supreme Court of Canada, and the outcome is expected next year. In the meantime, the IAA remains in place pending the decision of the Supreme Court of Canada.

Regulation of the discharge of pollution

Much environmental regulation in Canada consists of prohibitions against the discharge of pollutants into the environment, except where authorised in advance. For example, the British Columbia Environmental Management Act forbids the introduction of waste into the environment so as to cause pollution (unless valid permits and approvals are obtained).

Other environmental regulations focus on the impact of projects on the broader environment, including wildlife and their habitats. For example, Québec’s Act Respecting Threatened or Vulnerable Species and Ontario’s Endangered Species Act prohibit persons from destroying or harming designated species or altering the ecosystem or biological diversity of their habitat.

Environmental protection and permits

In mining, approvals are commonly required for air emissions, waste, water, noise and mine closure plans. Regulatory authorisation for discharges of effluents or emissions into the environment from a mine usually takes the form of permits, which are often tied to pre-established standards or guidelines.

Each province has its own environmental permitting regime, often requiring multiple permits under different statutes and ministries. Permits will be required for the discharge of waste, the building and storage of mine tailings and the use of water, among other activities.

The nature of mining operations may also require certain federal permits or approvals provided by multiple federal statutes, including the Fisheries Act, the IAA, the Canadian Environmental Protection Act, 1999, the Canadian Navigable Waters Act, the Explosives Act, the Migratory Birds Convention Act, 1994 or the Nuclear Safety and Control Act.

Proponents will also be required to provide financial security and a mine closure plan towards reclamation of the mine site.

It is important to note that applicable Indigenous communities and governments are often included throughout the regulatory review process and provided an opportunity to make submissions.

Cultivated lands, park lands, railway lands, public roadways, environmentally sensitive lands (eg, game reserves and bird sanctuaries), heritage lands, airport lands, town sites and other such developed areas are typically not open for mining activity, nor are lands in which a claim, mining exploration licence, mining concession or mining lease has already been granted.

Exploration and mining activities can also be subject to applicable land use plans in effect in the area. Ontario’s Far North Act previously included a moratorium on new mines in certain designated areas of the Far North of Ontario (defined as the northernmost third of Ontario’s land mass). Under Ontario’s Far North Act, there was also a prohibition against specific activities, such as the opening of a new mine, without a land use plan.

Ontario’s Far North Act grandfathers existing projects and mining rights tenures, but community-based land use plans will be developed in designated areas by First Nations, individually or collectively by neighbouring communities, working jointly with the Ministry of Natural Resources and Forestry. These plans will establish land use designations and permitted uses, including protected areas, within a planning area identified by First Nations communities.

Government officials responsible for administering statutes governing the disposition of minerals on Crown lands have the discretionary power to designate lands as withdrawn or not open for mining activity.

Community relations are a critical part of the approval and ongoing operation of mining projects in Canada and, in some instances, can be an essential requirement for governmental regulators in the consideration and approval of such projects. For Indigenous communities that may be affected by a mining project, the need for proactive community relations – both before and after a project is developed – can be a key part of the regulatory approval process(es) related to a project, including any Crown duty to consult Indigenous people regarding their Aboriginal and treaty rights.

Under Section 35 of the Constitution Act, 1982, the Crown has a duty to “uphold the Honour of the Crown” and to consult and, where appropriate, accommodate (remedy and/or mitigate potential impact on) Aboriginal peoples when making decisions (approval, grant of right or licence) or taking actions that may affect the rights of Aboriginal peoples. Most natural resource-related projects will trigger the duty to consult.

While the consultation process is the Crown’s responsibility (both the federal and provincial Crown, within their respective jurisdictions), the Crown is able to delegate some or all of the procedural aspects of consultation to project proponents, who in turn must work closely with the Crown as they carry out their respective consultation obligations. The objective of the consultation process is to provide a fair and transparent forum for the issues and concerns of Aboriginal peoples to be heard and considered in light of the proposed project’s activities and potential or actual impacts on their lands, their rights and the environment, and, where appropriate, to address such concerns through accommodation or other mitigation measures.

The Crown’s duty to consult and accommodate varies on a case-by-case basis, and not every project requires the same degree of consultation or accommodation. A single Crown decision can affect many different groups of Aboriginal peoples with overlapping claims or interests, so it is imperative that relevant Aboriginal groups are identified and consulted, that the consultation and accommodation records are done properly, and that the relevant Aboriginal groups are meaningfully consulted. Failure to do so can result in grants of licences and permits or approvals being delayed or challenged, community protests, investor relations problems and/or litigation for injunctions or damages.

Aboriginal (Indigenous) law in Canada is based on constitutionally protected inherent Aboriginal and treaty rights based on historic Indigenous occupation and traditional land use, historic and modern treaties, negotiated claim settlements and court-recognised rights. Aboriginal and treaty rights are constitutionally protected under Section 35 of the Constitution Act, 1982, which recognises and affirms the existing Aboriginal and treaty rights of Aboriginal (Inuit, Métis, First Nations) peoples of Canada and, as a result, both the federal and provincial governments are obligated to “act honourably” when dealing with Aboriginal peoples.

Aboriginal Rights, Aboriginal Title, Treaty Rights and Traditional Land Use Rights

Aboriginal rights are based upon and include customs, activities and traditions that have been exercised historically by Aboriginal peoples, including the right to hunt, trap, fish and gather on the land in question, as well as the protection of related economic, sacred, cultural and archaeological lands, sites, and flora and fauna.

Aboriginal title is a form of Aboriginal right that includes the right to the land itself derived from exclusive and unsurrendered occupation and use of land from prior to contact, and encompasses the right to exclusive benefit from and use and occupation of the land for a variety of purposes (not just traditional or cultural uses). Aboriginal title holders have the right to determine how land is used and the right to benefit from those uses. This is the highest order of Aboriginal land rights.

Treaty rights are those rights that an Aboriginal group enjoys as a result of having entered into a treaty (a unique legal instrument) setting out such rights with the Crown. Large parts of Canada are subject to treaty, while other parts are not (large portions of British Columbia, in particular). The particular treaty will determine what specific rights have been granted and are held.

Traditional land use rights are Aboriginal rights based upon and including customs, activities and traditions that have been exercised historically by Aboriginal peoples, including the right to hunt, trap, fish and gather on the land in question, as well as the protection of related economic, sacred, cultural and archaeological lands, sites and flora and fauna, without surrender by treaty, and may or may not be sufficient to support Aboriginal title and may be subject to, but protected by, treaty terms. Nevertheless, traditional land use rights are recognised and protected, and will trigger the Crown duty to consult (and potentially accommodate), as will Aboriginal title and treaty rights.

Justifiable Infringement of Aboriginal Rights

The Supreme Court of Canada has affirmed that certain Crown objectives can, in principle, justify infringement of Aboriginal title or treaty or other Aboriginal rights, including for the development of agriculture, forestry, mining and hydroelectric power, general economic development, the protection of the environment or endangered species, the building of infrastructure, and the settlement of foreign populations to support these objectives.

In order to justify an impairment or infringement of Aboriginal or treaty rights, the Crown must demonstrate a compelling and substantial governmental objective, and demonstrate that its actions are consistent with the fiduciary duty it owes to the Indigenous groups, including appropriate consultation (or attempts at consultation) as a precursor to justification of the infringement. Proof that the Crown’s actions in justifying infringement are consistent with the fiduciary duties it owes to Aboriginal peoples involves consideration of a three-part test:

• rational connection – the infringement must be necessary to achieve the Crown’s objective;
• minimal impairment – the Crown must go no further than necessary to achieve its objective; and
• proportionality of impact – the benefits expected to flow from the objective must not be outweighed by the adverse effects on the Aboriginal interest.

The Supreme Court of Canada has also held that provincial governments, acting within their legislative authority under Section 92 of the Constitution, may seek to justify an infringement of Aboriginal rights, including Aboriginal title. The federal government and the province of British Columbia have adopted the United Nations Declaration on the Rights of Indigenous Peoples (the “Declaration”). How this will integrate with the constitutional framework recognised by the Supreme Court of Canada as described above will likely be determined by future legislative enactments and/or court cases. Under the federal legislation approving the adoption of the Declaration in 2021, the federal government is required to consult and co-operate with Aboriginal peoples to implement an action plan to achieve the objectives of the Declaration. The federal government completed its phase one engagement process in 2022 and is currently developing a report of the initial engagement findings and draft action plan. The action plan must be completed no later than 2023. 

Impact Benefits Agreements

It is becoming common for companies to enter into impact-benefit, participation or other mutually beneficial agreements with Aboriginal peoples regarding projects, through consultation processes. Such agreements are often necessary to ensure that projects can proceed with greater certainty and that the legitimate concerns of the affected Aboriginal groups are addressed.

Depending upon the nature and strength of the proven or asserted Aboriginal right, benefits negotiated in these agreements can include some form of revenue or income participation, employment opportunities, education and training initiatives, or contracting and business opportunities for the affected communities, as well as capacity-building initiatives and plans to mitigate the environmental impacts of the project. Under the terms of some modern treaties, such agreements may be required as a matter of law.

It is common, and in many cases expected, that mining projects will enter into some form of agreement with Indigenous communities affected by a mining project; such agreements can also be linked to the requirements of the Crown to consult with Indigenous peoples. In some cases, community benefit and similar agreements are mandated by law, particularly in northern Canada relating to modern land claims agreements, such as the Nunavut Land Claims Agreement.

ESG matters are used by investors to evaluate the sustainability of investments and corporate practice. To date, there are no ESG-specific regulations in Canada for the mining sector. However, there are emerging securities disclosure regimes, commentary from securities exchanges, and industry guidance that relate to ESG issues.

Securities Disclosure Regimes

In Canada, the Canadian Securities Administrator (CSA) is primarily responsible for developing a harmonised approach to securities regulation across all provinces and territories and works with the provincial and territorial securities regulators to design policies and regulations to achieve that goal. One way that the CSA provides guidance is through the publication of national instruments. The CSA-issued guidance is typically adopted by provincial and territorial regulators, which ensures a certain consistency of securities interpretation and application across Canada. Despite the role of the CSA and the growth of ESG in the investment space in Canada, the CSA has not yet developed comprehensive guidance on ESG for public companies, although it has provided meaningful guidance for public companies on certain environmental and governance matters that are typically understood to fall within the ESG rubric.

In early 2022, the CSA published guidance for the first time for investment funds on their disclosure practices that relate to ESG considerations, particularly for ESG-related funds. The guidance seeks to address concerns related to “greenwashing” – where a fund’s disclosure or marketing intentionally or inadvertently misleads investors about ESG-related aspects of the fund. The guidance is based on existing securities regulatory requirements and does not create any new legal requirements or modify existing ones. The guidance provides the view of staff of the CSA on how the existing regulatory requirements apply to ESG-related fund disclosure. The guidance also includes best practices that would enhance ESG-related disclosure and sales communications. The guidance aims to bring greater clarity to ESG-related fund disclosure and sales communications to enable investors to make more informed investment decisions.

Exchanges

In August 2020, the Toronto Stock Exchange (TSX) and the Chartered Professional Accountants of Canada collaborated to publish guidance (the “TSX Primer”) for listed issuers looking to develop or enhance their environmental and social disclosures. The TSX Primer recommends a step-by-step approach to environmental and social disclosure that focuses on the disclosure of financially material factors. Notably, the TSX Primer acknowledges that as issuers continue to grow in market capitalisation, awareness of the potential impact of ESG research and ratings becomes increasingly important.

Industry Standards

The Mining Association of Canada’s Towards Sustainable Mining (TSM) standard, which helps mining companies evaluate and manage environmental and social responsibilities, addresses certain ESG matters. The TSM evaluates, independently validates and publicly reports on eight aspects of social and environmental performance against 30 distinct performance indicators. Although becoming a member of the Mining Association of Canada is voluntary, all members are required to undergo site-level assessments for evaluation under the TSM standard.

Greenstone Gold Mines – Hardrock Project

Greenstone Gold Mines has entered into three long-term relationship agreements involving four First Nations and the Metis Nation of Ontario, which provide benefits to First Nations and Metis peoples regarding Greenstone Gold’s “Hardrock Project” in northern Ontario. While none of the agreements were legally required, Greenstone Gold was proactive in engaging in positive relationship-building with these Indigenous peoples, which ultimately resulted in “win-win” agreements and strong relationships going forward for the advancement of the project.

Taseko Mines – Prosperity Project

Many of the issues facing Taseko Mines’ “Prosperity Project” in British Columbia dealt with challenges regarding its relationship with local First Nations communities and the finding that the project would cause a material environmental adverse effect, namely involving the draining of Teẑtan Biny (Fish Lake). As a result, the project failed to be approved in 2010. Since then, Taseko has proposed a “New Prosperity Project”, which does not involve the draining of Fish Lake and, while Taseko has attempted to reach agreements with local First Nations, the Tsilqhot’in Nation remains opposed to the project. In 2020, the Supreme Court of Canada refused to hear Taseko’s challenge to the federal government’s rejection of the project. The parties have continued to negotiate over the project and have entered into a standstill with respect to certain outstanding litigation and regulatory matters related to the project. In December 2021, the British Columbia Minister of Environment and Climate Change Strategy refused to grant a further 12-month extension to the project’s provincial environmental assessment certificate, meaning any development of the project will require a new application for a provincial environmental assessment certificate.

Federal and provincial governments in Canada and other countries have introduced climate change legislation that affects the mining industry. In addition, treaties have been introduced at the international level. These requirements are generally becoming more stringent, and are expected to increase compliance costs for the mining industry.

Climate change could also impose risks on the operations of the mining industry, due to effects such as increased extreme weather events, rising sea levels and the melting of the Arctic permafrost. Major Canadian mining companies are aware of the potentially significant effects on their operations.

Canada has a two-tiered approach to climate change regulation: federal and provincial.

Federal Regulation

At the federal level, the Greenhouse Gas Pollution Pricing Act implements the federal carbon pollution pricing (fee) system aimed at reducing greenhouse gas (GHG) emissions. The federal scheme has two key parts.

The first part is the fuel charge administered by the Canadian Revenue Agency. This charge is imposed on 21 types of fuel and combustible waste and has increased from CAD20 per tonne of carbon dioxide equivalent (CO2e) in 2019 by CAD10 per tonne annually until it reached CAD50 per tonne in 2022. The federal government announced in December 2020 that the charge will increase CAD15 per tonne annually from 2022 onwards until it reaches CAD170 per tonne in 2030.

The second component is the output-based pricing system, whereby facilities pay a carbon price if their emissions exceed a set level. Future federal legislation such as the Regulations Respecting Reduction in the Release of Methane and Certain Volatile Organic Compounds, which is due to come into force in its entirety in 2023, will also affect the mining industry. In 2021, the Supreme Court of Canada upheld the constitutionality of the Greenhouse Gas Pollution Pricing Act (References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11).

As detailed in the Provincial and Territorial Regulation section below, federal regulations apply in provinces and territories that do not implement their own system that satisfies federal pricing and emissions reduction standards.

Provincial and Territorial Regulation

At the provincial and territorial level, each province and territory has its own supplementary regime and is free to choose whether to implement a carbon pollution price or a cap-and-trade system, if the minimum federal pricing and emissions reduction targets are met. Where provincial systems do not meet these minimums, the federal pricing system will apply as a backstop to ensure the minimum targets are achieved. Currently, the federal fuel charge system applies in Alberta, Manitoba, Ontario, Saskatchewan, Nunavut and Yukon. The federal output-based pricing system applies in Yukon, Manitoba, Nunavut, Prince Edward Island and partially in Saskatchewan.

There are many sustainable development and corporate social responsibility initiatives affecting the mining industry in Canada, including the following examples:

• the International Council on Mining and Metals – an organisation comprised of mining and metals companies and associations working together on sustainability and requiring its members to perform based on principles of sustainable development;
• the Extractive Industries Transparency Initiative – a partnership of governments, international organisations, companies, non-governmental organisations, investors, and business and industrial organisations aiming to improve transparency in transactions between governments and companies in the extractive industries;
• the World Gold Council’s Conflict-Free Gold Standard – a common approach by which gold producers can assess and provide assurance that gold has been extracted in a manner that avoids benefiting armed conflict or human rights abusers; and
• the Towards Sustainable Mining standard.

The federal government released “The Canadian Critical Minerals Strategy” on 9 December 2022. Canada’s list of critical minerals currently consists of 31 minerals, which are those minerals deemed to be essential to the country’s economic security and its supply is threatened; required for the country’s transition to a low-carbon economy; or a sustainable source of highly strategic critical minerals for partners and allies.

The Canadian Critical Minerals Strategy addresses the following five core objectives in relation to Canada’s critical minerals:

• supporting economic growth, competitiveness and job creation;
• promoting climate action and environmental protection;
• advancing reconciliation with Indigenous peoples;
• fostering diverse and inclusive workforces and communities; and
• enhancing global security and partnerships with allies.

The Canadian Critical Minerals Strategy is further detailed in the Canada Trends & Developments chapter in this guide.

Corporations that carry on exploration and mining activities in Canada are subject to the general corporate income tax rules that apply to all corporations operating in the country. Income tax is imposed at the federal level, under the Income Tax Act (Canada), and at the provincial and territorial level, with each province and territory having its own income tax statute. The current Canadian federal corporate tax rate is 15%, and provincial/territorial tax rates range from 8% to 16%.

A non-resident corporation that carries on business in Canada is subject to income tax in Canada at the same corporate tax rate applicable to Canadian resident corporations, and is also subject to a 25% “branch tax” on profits that are not reinvested in Canada. The branch tax is intended to approximate withholding tax on dividends, and where the dividend withholding tax rate is reduced under an applicable tax treaty, the branch tax is generally correspondingly reduced. In addition, a non-resident is subject to income tax in Canada on the disposition of “taxable Canadian property”, which includes any interest in real or resource properties situated in Canada, as well as certain shares and partnership or trust interests that derive their value from such properties.

Canada levies a 25% withholding tax on certain payments to non-residents, including dividends, certain interest payments, rents and royalties. The rate of Canadian withholding tax may be reduced if the non-resident recipient is eligible to claim the benefits of one of Canada’s tax treaties.

Each province and territory also levies separate mining taxes or royalties on mining activities; the rates and basis of calculation vary depending upon the jurisdiction and the type of mineral. In many provinces and territories, the mining tax is computed by reference to mining profits, whereas certain provinces impose royalties that vary according to the specific mineral.

As is the case in other sectors, a corporation engaged in exploration and mining activities is entitled to deduct expenses incurred for the purpose of earning income. In addition, a corporation is entitled to deduct certain capital expenditures, including tax depreciation on tangible capital assets (capital cost allowance, or CCA). Recognising the capital-intensive nature of the mining industry, and to ensure the international competitiveness of the Canadian resource industry, the tax regimes applicable to exploration and mining contain a number of incentives designed to encourage investment, including the following.

• Mining taxes and royalties paid to a province or territory with respect to income from a mineral resource are fully deductible when computing income for income tax purposes.
• The depreciation of tangible assets for income tax purposes is allowed under the CCA system, under which the capital cost of a depreciable asset is included in a particular asset class, for which a maximum annual depreciation rate is prescribed. In addition, in 2018 the federal government introduced an “Accelerated Investment Incentive”, which provides for an enhanced first-year CCA deduction for certain properties that become available for use before 2028. The Accelerated Investment Incentive will be gradually phased out for assets that become available for use after 2023.
• Certain other resource or mining expenses may also be deducted on a current or declining-balance basis. These expenses are added to cumulative resource pools classified as Canadian exploration expenses (CEE) and Canadian development expenses (CDE):
1. CEE include expenses that are incurred by the taxpayer for the purpose of determining the existence, location, extent or quality of a mineral resource in Canada. Generally, CEE may be deducted at a rate of 100%, up to the taxpayer’s income for the year. Any unclaimed CEE may be carried forward indefinitely.
2. CDE include expenses that are not CEE and are incurred for the purpose of bringing a new mine in Canada into production (ie, pre-production mine development expenses). CDE may be deducted at a rate of 30% on a declining-balance basis. Unclaimed CDE may be carried forward indefinitely. An enhanced deduction is also available for certain CDE incurred after 20 November 2018 and before 2028 (“Accelerated CDE”). Accelerated CDE incurred prior to 2024 will qualify for an additional deduction of 15%. The enhanced deduction will be phased out after 2023, with Accelerated CDE incurred after 2023 and before 2028 qualifying for an additional deduction of 7.5%.
• Certain corporations carrying out exploration and mining activities in Canada (other than for oil, gas and coal activities) can issue flow-through shares, pursuant to which the tax deductions attributable to certain expenditures incurred (such as CDE and CEE) are renounced by the corporation to the flow-through shareholders such that the shareholders (and not the corporation) may deduct the renounced expenditures in computing their income. An additional 15% federal Mineral Exploration Tax Credit (METC) is available with respect to certain flow-through mining expenditures (generally referred to as “grassroots exploration” expenses). Many provinces offer parallel credits as high as 30% in some circumstances.
• The critical minerals exploration tax credit (CMETC) is a new credit provided by the federal government in 2022 and is a 30% federal tax credit for eligible flow-through mining expenditures renounced under eligible flow-through share agreements entered into between 7 April 2022 and 31 March 2027. Among other requirements, eligible expenditures must be exploration expenses that primarily target deposits containing mostly (ie, more than 50%) certain critical minerals. Eligible expenditures are not permitted to benefit from both the CMETC and the METC.
• Contributions made to a qualifying environmental trust used to fund future reclamation are deductible in the year in which they are made (as opposed to reclamation expenses, which are generally recognised for income tax purposes at the time the reclamation is carried out).
• Provincial governments also provide certain tax incentives for exploration and mining activities that are carried out in the province. These incentives take the form of income tax credits or relief with respect to provincial mining taxes.

Canada does not offer tax stabilisation agreements to non-resident investors in the mining industry.

A mining project may be disposed of by way of a sale of the mining assets or of the relevant entity in which the mining project is held. The disposition of capital property in Canada generally results in a capital gain (or loss), with half of any capital gain being included in income. The disposition of mining assets may result in income (in the case of resource property), recapture (in the case of depreciable property) and capital gains on capital property.

Non-residents are subject to tax in Canada on the disposition of “taxable Canadian property”, which includes real property and resource property situated in Canada, property used by the taxpayer in certain businesses carried on in Canada, and certain shares and partnership or trust interests that derive their value from real property or resource properties situated in Canada.

Most provinces impose land transfer taxes on transfers of real property. The rates of land transfer tax vary by province, and transfers of resource properties are often exempt from land transfer tax.

Canada and each of its provinces and territories that regulate mining activities consistently rank high in many of the world mining surveys for investment attractiveness; for instance, the Fraser Institute Annual Survey of Mining Companies 2021 ranked Canada the second most attractive region in the world for investment.

In addition, Canada hosts excellent geology conducive to mineral exploration and development, with a track record of mineral discoveries in numerous commodities. The country also has a stable legal and political framework to support the mining industry, a high concentration of professionals to service the mining industry, multiple investment-friendly tax incentives specific to the mining industry, and securities regulators and stock exchanges that are friendly to the mining industry.

All these attributes contribute to attracting considerable investment in the mining industry in Canada.

In general, investment in a Canadian mining enterprise may require approval under the Investment Canada Act (ICA), under which the federal government reviews foreign acquisitions of control of Canadian businesses above certain monetary thresholds. The review threshold ultimately depends on the transacting parties and whether a trade agreement exists between such party’s country and Canada. As of December 2022, the monetary thresholds are as follows:

• CAD1.711 billion in enterprise value for trade agreement investors that are not state-owned enterprises and non-trade agreement investors that are not state-owned enterprises where the Canadian business is, immediately prior to the investment, controlled by a trade agreement investor;
• CAD1.141 billion in enterprise value for WTO investors that are not state-owned enterprises and non-WTO investors that are not state-owned enterprises where the Canadian business is, immediately prior to the investment, controlled by a WTO investor;
• CAD454 million in asset value for WTO state-owned enterprises and non-WTO investors that are state-owned enterprises where the Canadian business is, immediately prior to the investment, controlled by a WTO investor; and
• CAD5 million and CAD50 million in asset value for a non-WTO investor for direct and indirect investments, respectively.

The ICA requires notice of all other foreign acquisitions of control (within the meaning of the ICA) of Canadian businesses and certain new foreign investment. However, there is no provincial or territorial mining legislation that restricts the ownership or development of mineral rights based on citizenship.

Where an investment is subject to review under the ICA, the investor must demonstrate that the investment is of “net benefit” to Canada. Typically, this requires investors to provide binding undertakings to the federal government regarding their operation of the Canadian business.

In addition, the ICA allows the federal government to review all investments by foreign companies where it believes the investment may be “injurious to national security”.

Recent Developments

Mining transactions involving critical minerals are among the “critical goods” attracting increased foreign investment scrutiny. In March 2021, the Canadian government published a “Critical Minerals List”, comprised of 31 minerals (including copper, lithium and molybdenum) “considered critical for the sustainable economic success of Canada and our allies and to position Canada as the leading mining nation”. Most of the listed minerals also appear on the US list of 50 critical mineral commodities.

Also in March 2021, the government of Canada issued updated national security review guidelines that identify “the potential impact of the investment on critical minerals and critical mineral supply chains” as a factor that will be taken into account by the government in assessing the potential national security implications of a proposed transaction.

These developments portend significant scrutiny of mining transactions, particularly proposed Chinese or state-owned investor acquisitions of Canadian mining companies involved at any level of the critical minerals value chain (eg, exploration, development and production, resource processing and refining).

In 2022, the federal government ordered the divestiture of certain Chinese entities of their investments in certain Canadian companies with critical mineral projects in Canada and in foreign jurisdictions. These divestitures of Chinese entities in Canadian companies were ordered by the federal government due to concerns over national security and Canada’s critical minerals supply chains (including lithium).

Also in 2022, the federal government released an annual report covering foreign investment reviews under the ICA from April 2021 through March 2022. The annual report confirmed that foreign investment levels are returning to pre-COVID-19 levels as global foreign direct investment recovers. The federal government also marked a sharp increase in the number of extended national security reviews. However, not all such extended reviews resulted in orders that prevented or unwound a foreign investment.

Foreign mining companies are generally free to hold mineral rights directly or through Canadian subsidiaries. However, the federal government does limit non-resident ownership of uranium mines to 49% at the first stage of production. Exemptions may be granted in cases where it can be demonstrated that the project remains under Canadian control, or where Canadian partners cannot be found. There are no restrictions on uranium exploration by foreign persons or companies.

Canada is a party to several multilateral free trade agreements and investment agreements, which provide foreign investors, including Canadian mining companies, with the right to file a claim for damages against the government of the host country for expropriation or unfair or discriminatory treatment of their investments and investors.

In May 2021, the Canadian government released a modernised Foreign Investment Promotion and Protection Agreement Model representing the first major update since 2003. The updated model confirms that Canada intends to continue providing international dispute resolution protections to foreign investors.

To date, Canadian investors in the mining, oil and gas industries have been complainants in approximately 70% of Canadian investor-state cases, the majority of which targeted Latin America. However, following March 2023, the mechanism for arbitration proceedings with the United States and Mexico under the North American Free Trade Agreement will no longer be available and investors must instead submit claims under the United States-Mexico-Canada Agreement.

The Canadian mining sector is subject to Canadian economic sanctions legislation as well as foreign anti-corruption legislation, including the Extractive Sector Transparency Measures Act (ESTMA), which requires Canadian mining companies to implement mandatory reporting standards and report annually on payments to all levels of government, domestically and internationally.

In Canada, the traditional sources of financing for exploration-stage projects have been raising capital through the equity markets (eg, private placements or public offerings) and option/joint venture transactions (eg, a junior company that owns a project grants an option to a more senior company for it to earn a controlling interest in the project in exchange for expending funds in exploration (or cash payments) on an agreed schedule). In option/joint venture transactions, the junior company is not required to fund the initial stages of the project and is “carried” until the senior company earns its majority interest, following which both parties contribute to the project in proportion to their interests, with a joint venture then being formed between the companies.

As a project evolves into the development phase, debt financing also becomes more accessible, such as bond or convertible debt offerings, and debt facilities from a bank. Once a production decision is made based on a feasibility study, project financing is the most common source of financing for the construction of a mine, with the assets of the project being offered as security. Such project financing may also be supplemented by offtake agreements, where the producer will sell all or a percentage of the future production from a specific facility to an end user.

Other less traditional finance methods, such as royalties and metal streaming, have recently become more common to finance all stages of a project, including exploration and development, well before the construction of a mine begins.

Metal stream financings have also become more common earlier in the life cycle of a mine, in addition to being used at later stages. Stream financings are where a company agrees to sell a certain percentage of one or more of the metals/minerals produced from a mining operation to a streaming company, at a fixed price that is lower than the prevailing market rate, in exchange for an upfront payment in the form of a financial deposit. This enables a company to monetise a specific metal/mineral prior to physically extracting it.

Domestic and international securities markets play an especially crucial role in the financing of mining projects in Canada. As discussed under 5.4 Sources of Finance for Exploration, Development and Mining, junior companies in Canada rely on raising capital through the Canadian equity markets (and, in some cases, in other markets, such as those in the United States, Australia and London), especially at the early stages of the life of a project. The amount of investment that these junior companies can attract depends on commodity prices, world economic health, the state of global mining cycles and, lately, competition from other industries for this risk capital.

The types of security available over mining-related assets in Canada differ depending on the stage of development and the location of the project.

For exploration-stage projects of Crown minerals, a lender or financer can obtain minimal security due to the nature of the type of mineral tenure that is granted early in a project in most provinces or territories; typically, these are mineral claims granted under statute. The type of security that can be granted will depend on the statute creating the interest and the related registry. Some statutes deem mineral claims to be a form of personal property, while others deem mineral claims to be an interest in land equivalent to a lease.

Regardless of the interest, land title statutes and personal property security legislation typically do not apply to Crown minerals, and security must be registered in accordance with the mining statute. Most provincial mineral statutes and registries will, however, allow notices to be filed on mineral claims giving notice of the security granted over such mineral claims. Many of these statutes do not provide a priority regime and are merely a notice to third parties regarding a potential encumbrance, or interest, and the priority is governed by common law.

As a project advances, most companies will upgrade their mining or mineral claims to a more secure type of tenure, typically a mining lease (or equivalent). In most jurisdictions, mining leases are considered an interest in land and, therefore, mortgages and other encumbrances can be filed on title, which could provide priorities and enforcement rights to lenders or other financers, depending on the jurisdiction and nature of the mining tenure.

When the project has advanced to the stage of mine construction, the security for project financing is generally provided at the project level, by the project entity that owns the project and the minerals.

Over the past several years pre COVID-19 pandemic, industries such as cryptocurrency, blockchain and cannabis have lured risk capital away from mining, and that, combined with depressed commodity prices, has slowed the growth and activity of the mining industry domestically and internationally. However, strong investor interest has returned to the sector due to improved commodity prices, particularly precious and energy metals, industry consolidation through mergers and acquisitions in Canada and traditional investment diversification during times of general economic uncertainty as a result of the COVID-19 pandemic.

While the Canadian mining industry has undoubtedly been impacted by the COVID-19 pandemic, both federal and provincial governments have undertaken steps to mitigate such impact. For example, governments have extended filing deadlines and provided additional tax incentives (such as the introduction of the CMETC). However, currently, as a result of supply chain bottlenecks post COVID-19 pandemic, a return to softer commodity prices and heightened scrutiny of the federal government in assessing foreign investments for national security reasons (especially with respect to critical minerals), investments and capital raising in the mining industry in Canada have slowed, and this trend is expected to continue well into 2023.