Ministère des Ressources naturelles et
de la Faune

Summary and highlights of the Québec Mining Industry for 2005

Summary and highlights
of the Québec Mining Industry for 2005

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Economic overview >>

Outlook 2006>>

Metallic minerals >>

Gold >>

Ferrous metals >>

Base metals >>

Industrial minerals >>

Mining investment, financing and taxation >>

Exploration and deposit appraisal activities >>

Financing >>

Mining taxation >>

Mining environment >>

Research and development >>

Strategic activities >>

Overview of the situation in 2005

The Metals and Minerals Market

Despite a certain slowdown, namely due to higher
oil prices, the global economy remained strong in 2005, with
the United States and China leading the way. The global mining
industry, more specifically, took advantage of the strong Chinese
demand, which translated into higher prices for several metals and
minerals. In fact, certain metal and mineral prices, also bolstered
by constraints in terms of supply, reached record levels in nominal
terms.

Thus, average annual prices for base metals
(copper, nickel, zinc) were once again on the rise in 2005,
particularly for zinc and copper. They profited, to varying degrees,
of the vigorous Chinese demand, of various constraints in terms of
supply and of low stock levels.

In addition to the generally strong fundamentals in
the base metal market, base metal prices greatly benefited from the
growing interest of investment funds for commodities. Moreover, iron
ore prices, buoyed by the strong rise of imports into China,
experienced record growth in 2005, reaching new historic peaks
in nominal terms. Finally, the daily gold price broke through the
US$500 barrier for the first time since 1983.

The impact of these price hikes on the Québec
mining industry was more than offset however by the continuing
appreciation of the Canadian dollar in 2005, but most of all by
decreases, significant in some cases, in shipments namely due to
mine closures which took place over the last two years. Based on
preliminary data, the value of mineral shipments in Québec stood at
$3.62 billion in 2005, compared to $4.01 billion
in 2004.

Outlook for 2006

In the metals and minerals
industry

Global economic growth should remain healthy
in 2006, although certain risk factors, namely fluctuations in
global oil prices, are deemed particularly significant by
forecasters. Stimulated by this overall favourable economic setting,
and particularly by the Chinese market which should remain strong,
demand for metals and minerals should therefore experience another
good year.

In terms of prices for metal commodities, some
markets are expected to remain fairly tight, thus metal prices
should remain strong and even increase in certain cases. For base
metals (copper, nickel and zinc) in particular, average annual
prices should remain high and even increase, once again due to
generally low stock levels and vigorous Chinese demand. However,
investment funds will undoubtedly continue to impact greatly base
metal prices in 2006. In fact, sustained interest in these
funds has prompted many analysts to significantly improve their
forecasts early in the year. This situation is also likely to
increase volatility, regardless of how their fundamentals evolve.

The mining industry in Québec should therefore
benefit from the vigorous global demand for metals and minerals, as
well as from the high average annual prices for many of these
commodities.

Metallic minerals

In 2005, the global market for metallic
minerals was rather positive, compared to results recorded
for 2004.

Gold in 2005 >>

Ferrous metals in 2005

Iron >>

Niobium >>

Base metals in 2005

Copper >>

Nickel >>

Zinc >

Gold

Global Setting

The average price of gold in 2005 stood at US$445 per
ounce (London PM fix), compared to US$409 per ounce
in 2004, an increase of 8.6% and the highest level
since 1987. In fact, the gold price continues to climb
since 2001, when the average annual price of gold dropped to
a low of US$271 per ounce.

On a daily basis, from the last quote of 2004 to the last
quote of 2005, the price of gold increased by 17.8%, from
US$435.60 to US$513.00 per ounce. The daily quote peaked
at US$536.50 on December 12, 2005. The previous
daily spot price to reach this high dates back to 1981. The
floor price for 2005, which stood at US$411.10, was reached
on February 8th.

Unlike 2003 and 2004, when the US dollar lost value relative
to other major currencies, in 2005 the US dollar was strong
and actually gained value relative to many currencies, namely the
euro, the yen and the pound. The average price of gold, expressed
in these currencies, therefore rose even more than in US dollars.

The Canadian dollar, on the other hand, continued to
appreciate relative to the US dollar. Consequently, the price
of gold did not show the same progression in CAN dollars compared
to US dollars. Thus, from 2001 to 2005, the average
annual price of gold in CAN dollars increased by 28%, compared to
a 64% hike in US dollars. Note that the average exchange rate
in 2005 for the Canadian currency was 1.2116 (CAN$/US$),
compared to 1.3015 in 2004, 1.4015 in 2003, and 1.5704
in 2002.

In 2005, the average price of gold in CAN dollars grew by a
mere 1.2%, moving from CAN$531.72 per ounce in 2004 to
CAN$537.95 per ounce in 2005. On a daily basis, from the
last quote in 2004 to the last quote in 2005, the price
of gold went from CAN$525.27 per ounce to CAN$597.70 per
ounce, a 13.8% increase. However, this significant improvement in
the daily gold price in CAN dollars only materialized over the
last two months of the year.

The rising price of gold, especially in the later months of
the year, was largely caused by demand for investment purposes,
from investors and speculators (ingots, gold equity, or
derivatives). The latter took up significant buying positions in a
market characterized by:

Fears concerning the upcoming weakness of the US dollar (the
American current account and budget running very high deficits);

Expectations of greater inflation (high energy costs);

Growing investor interest for commodities (among which
institutional investors and retirement funds);

Geopolitical unrest;

US interest rates expected to level out, etc.

The rising gold price is also attributable to the
success of new exchange-traded funds backed by gold ingots.

Among the principal fundamentals which reassured investors
in 2005 and which directly contributed to the rising gold
price, we can mention:

The continuance of the Central Bank Gold Agreement, which
restricts sales of European central banks to 500 tonnes per
year;

The ongoing reduction of gold producers’ hedging positions,
albeit at a slower pace than in 2004;

Growing demand for jewellery, namely supported by the Middle
East market (high oil prices);

The recent deregulation of the gold market and the growing
purchasing power in certain countries such as China and India;

The weak growth in mining output in 2005 and
expectations of rather slow growth in coming years;

Rising operating costs for gold producers.

The very strong rise in demand for gold investments, in all
forms, and the growing demand for gold jewellery compensated for
the much greater supply from central bank sales, for the slight
increased supply from gold producers and recycling, and for the
significant decrease in demand brought on by declining de-hedging
by gold producers.

The performance of the Canadian stock market gold sub-index
(S&P/TSX gold index), composed of companies operating gold
mines in Canada and abroad, was up +20.1% in 2005, compared
to –9% in 2004, +13.6% in 2003, and +42.5% in 2002.

Despite the rising gold price in US$, and to a lesser extent
in CAN$, the rising cost of raw materials (cement, steel), power
and labour, as well as the lower grade of ore extracted in certain
mature mines made operating costs rise, which had a negative
impact on the performance of gold mines in Québec.

Situation in Québec

Based on preliminary data, the volume and value of gold
shipments from Québec mines slightly decreased in 2005. This
drop is attributable to operating conditions and to the shutdown
of the Bell Allard, Louvicourt, and Bouchard-Hébert mines, all of
which produced gold as a by-product.

In July 2005, Agnico-Eagle Mines Ltd announced its decision to
bring the Goldex project into production, at a cost of $177M. The
ore deposit, located 3 kilometres west of Val-d’Or near the
rivière Thompson, hosts nearly 21 million metric tonnes of
ore grading nearly 2 g/t gold. This mining operation
will generate about 200 jobs over a period of 12 years.

Agnico-Eagle Mines Ltd continued shaft-sinking on the Lapa
property. The shaft has now reached a depth of 2,850 feet,
more than 50% of its total depth. Shaft-sinking should be
completed in the summer of 2006. The company also continued
drilling and assessment work on the LaRonde II ore deposit.
Results are expected to be announced over the course of 2006.

Richmont Mines Inc. pursued development work on the East Amphi
deposit, located near Malartic. The company extracted a
25,900-tonne bulk sample from the ore deposit, including
15,800 tonnes from the first four stopes. A technical report
concerning the rock mechanics for the A Zone was completed in
December 2005. The company is currently examining which
mining method is best suited for this zone, in order to complete
its reserve assessment for this part of the deposit.

After a planned production halt during the summer, mining
operations resumed in early September at the Beaufor mine, held by
Richmont Mines Inc. During the fall, the company began development
of a ramp to reach the lowest accessible level at the mine, at
30 metres vertical depth, in order to access the depth
extension of Zone C, where gold reserves of
50,000 tonnes at an average grade of 9.4 g/t have
already been identified. The potential of Zone B, located
further south, and the depth potential of Zone C will be
drill-tested.

During the year, Aurizon Mines Ltd continued assessment and
development work on the Casa Berardi project. In December, the
company closed a $28M financing, and announced it had received a
commitment from BNP Paribas to arrange and underwrite a senior
debt financing facility for a maximum amount of $75M. This debt
facility is expected to close early in 2006, and will allow
the company to complete its development program at the mine. At
the end of 2005, the company had nearly completed its surface
installations. Remaining work includes shaft sinking and
modifications to the processing plant.

In April 2005, Cambior reached an agreement with Aurizon Mines
Ltd to purchase the remaining 50% interest in the Sleeping Giant
gold mine, at a price of CAN$5M. Production rates in 2005
remained stable at the Sleeping Giant mine relative to 2004.
The performance of the Doyon division consistently improved during
the year, thanks to the mining of high-grade zones at the Mouska
mine.

Exploration work carried out in 2005 under the open pit
at the Troilus mine led to the identification of a gold resource
of 37.3 Mt, for 1.7 million ounces of gold.

In early June 2005, Century Mining Corporation announced the
start-up of commercial production at the Sigma-Lamaque mine. The
company continues to evaluate reserves on the property.

Operations at the Joe Mann mine, expected to terminate
in 2005, will be maintained at least until
December 2006. High gold prices and good results of
operations at the mine explain this extension. In 2005, the
Joe Mann mine produced 29,400 ounces of gold.

Outlook for 2006

In 2006, given the continuance of the Central Bank Gold
Agreement (CBGA), real interest rates which should remain under
control, and the continued deregulation of the gold market in
certain Asian countries among which China, the price of gold will
continue to be largely determined by demand for investment
purposes. The latter will be essentially supported by the same
fundamentals as in 2005 (fears concerning the weakness of the
US dollar and rising inflation, continued interest for
investment in commodities in general, persistent geopolitical
unrest, popularity of exchange-traded funds). The expected
decrease of central bank sales outside of the CBGA, the continued
de-hedging of gold producers, the growing demand for gold
jewellery, which would support the gold price should it fall below
US$500, and a moderate increase in mining output should also be
favourable for gold in 2006.

Leading analysts forecast an average price of gold on the
order of US$550 to US$600 per ounce. At an average exchange
rate of CAN$1.12/US$1, this represents an average price on the
order of CAN$616 to CAN$672 per ounce. The daily quote should
likely range between US$530 and US$650 per ounce.

In 2006, the volume of gold shipments from Québec is expected
to remain similar to 2005, despite the anticipated start-up
of the East Amphi and Casa Berardi gold mines. The Goldex project
will not have an impact until 2008.

In 2006, the Troilus mine plans to increase its throughput to
20,000 tonnes/day, an increase of 5%. More than half of
this will come from the J-4 pit.

Ferrous metals

Iron  >>
Niobium  >>

Iron

Global Setting

In 2005, for the third consecutive year, agreements
establishing benchmark prices for iron ore led to new price
increases, the greatest ever obtained. Prices thus reached new
historic highs in nominal terms. More specifically, the
Québec-Cartier Mining Company (QCMC) and the Iron Ore Company
(IOC) obtained higher prices on the European market, namely 86.14%
higher for the free on board (FOB) price of pellets, and 71.5%
higher for concentrates. This tremendous increase is essentially
related to the vigorous Chinese demand, although other factors
also played a role, such as:

Soaring global prices for steel in 2004;

Better performance of currencies relative to the US dollar
for many iron ore producing countries;

Substantial investments made by mining producers to meet
demand.

The global production of crude steel once again showed
vigorous growth in 2005, although the pace slowed down
somewhat during the second semester. Steelmakers in Europe and
North America namely cut back their production so as to bring down
the significant inventories accumulated in 2004 and thus
support steel prices. According to preliminary data released by
the International Iron and Steel Institute (IISI), production was
up nearly 6% by the end of the year. This growth was largely
attributable to China, where production increased by some 25%,
since the rest of the world posted a slight drop of about 1%. Note
however that Chinese production outstripped demand for 2005, which
led the Chinese government to implement new measures to correct
the situation. The European Union (-2.5%), the United States
(-5.8%), and Canada (-4.5%) reported decreases, with
sharper drops in the second semester. IISI data reports an
increase of about 8% in the production of pig iron, and of 5% for
direct reduced iron, two important markers of iron ore
consumption.

According to AME Mineral Economics, the good performance of
the global steel industry translated into a 10% or so increase of
apparent iron ore consumption in 2005, which includes a hike
close to 30% in China. Iron ore imports into China were up by
about 30%, although its domestic production also increased
considerably. As for Europe and North America, the main markets
for iron ore producers in Québec and Labrador, their combined
apparent consumption went down by about 6.5% as a result of
reduced steel production.

The main world suppliers of iron ore, faced with a vigorous
demand, once again posted much higher sales in 2005, reaching
record levels overall. For the third consecutive year, most major
producers operated at full capacity or just about, barely able to
meet the strong growth of the Chinese demand, which led them to
step up development and expansion projects. This tight context and
ensuing price hikes prompted several steelmakers to secure their
iron ore supply by entering long-term contracts with mining
producers.

Situation in Québec

The Québec-Cartier Mining Company (QCMC), acquired
in 2005 by Dofasco, adopted a new mining plan which extends
mining operations at the Mont-Wright mine until 2026. The
mine closure was previously planned for 2016.

In 2005, QCMC shipments reached 10.9 Mt compared to
13.2 Mt in 2004. An eight-week strike which affected its
installations in Port-Cartier and Fermont is the major factor
explaining this drop of nearly 17%.

Shipments for the two other iron ore producers in the
Côte-Nord region, IOC and Wabush Mines, were respectively of
13.7 Mt and 4.9 Mt in 2005.

In light of rising iron ore prices and consistent demand from
the Chinese steel manufacturing industry, several iron ore
development projects sprang up in the Fermont and Schefferville
area. Five development projects were in the works at the end
of 2005.

Outlook for 2006

The global steel industry should continue to grow
in 2006, despite an anticipated slowdown in the growth rate
of the Chinese production, as a result of last year’s surplus.
Thus, unlike last year, the global production of crude steel,
excluding China, is expected to increase, namely in Europe and
North America, which should post modest increases. The bulk of the
global production increase will nevertheless remain largely
attributable to China.

The future remains bright in terms of global demand for iron
ore, which should continue to increase in 2006. This hike
will again come mainly from China, which should also continue to
increase its iron ore imports, albeit at a slower pace than last
year. Global demand from the main markets for Québec and Labrador
producers should also increase, at a modest rate however. Despite
this favourable outlook, the evolution of the iron ore market this
year could be strongly affected by such factors as Chinese demand,
given the strong growth of its domestic iron ore production and
last year’s surplus steel output.

Chinese demand should remain fairly vigorous, to maintain
tight conditions on the iron ore market in 2006. Most
early-year forecasts expected new benchmark price hikes for iron
ore products in 2006, albeit less spectacular than in 2005.
In addition to the firm market, these forecasts are namely based
on healthy spot prices, which remain higher than negotiated
prices. Analysts also mention the substantial mining investments
to be forked out to meet demand and the rising production costs
which should ensue. Heated negotiations are expected, given the
significant raises obtained last year, dropping steel prices and
the important role played by China in this market.

The three iron ore producers in Québec and Labrador are
expected to operate at full capacity in 2006.

In 2005, most iron ore development projects had reached the
deposit appraisal phase. In 2006, several feasibility studies
should be carried out in order to, pending results, establish
financing mechanisms needed to go into production.

One of the current producers could also announce it is
considering the possibility of increasing its mining output or its
concentrate processing capacity.

Niobium

In 2005, the Niobec mine benefited from a very strong market
for ferroniobium.

In September 2005, the Niobec mine completed an important
expansion and optimization program to increase its capacity by
20%. This expansion should allow Niobec to maintain its market
share in coming years. This latest expansion program required
capital investments of US$6.1M. As at December 31, 2005,
reserves stood at 21.5 Mt grading
0.66% Nb2O5.

In November 2005, within the scope of its project to bring the
Oka niobium deposit into production, Niocan Inc. announced it had
hired a specialized firm to develop a plan of action that would
address concerns raised by the Ministère du Développement durable,
de l’Environnement et des Parcs.

Outlook for 2006

For 2006, Cambior Inc., owner of the Niobec mine, expects
ferroniobium sales to reach US$60 million, compared to sales
of US$51.4 million in 2005.

Base metals

Copper  >>
Nickel  >>
Zinc  >>

Copper

Global Setting

In 2005, refined copper output did not increase as
significantly as expected. Thus, several mines and smelters namely
had to interrupt operations for various reasons, including labour
conflicts, maintenance work, and natural disasters. However,
global consumption fell sharply, with most consumer countries
posting drops, except for China particulary, which experienced a
significant increase. Thus, the global market for refined copper
seems to have reached balance, after two years of heavy deficits.
Copper stocks, namely those of metal exchanges, therefore remained
very low.

With these relatively solid fundamentals, the price of copper
increased once again in 2005, having particularly benefited
from the growing interest of investment funds for commodities.
Thus, the average annual cash settlement price on the London Metal
Exchange went up nearly 30% relative to 2004, at US$1.67/lb, a
historic high in nominal terms. In fact, the daily quote reached a
new record high, even breaking through the US$2.00/lb barrier to
end the year at US$2.08/lb. Given the low stock levels, copper
prices experienced a lot of volatility during the year, namely
reacting to the numerous work stoppages.

Given the abundant concentrates available during negotiations
undertaken in late 2004, treatment and refining charges
covered by annual contracts increased substantially in 2005.
In fact, this abundance also allowed spot treatment and refining
charges to reach fairly high levels during the year, as those also
profited from the various smelter closures for maintenance
purposes. Although spot charges decreased somewhat during the
second half of the year, charges negotiated under annual contract
settlements for 2006 recorded new increases.

Situation in Québec

The Horne smelter produced in 2005 about 150 kt of
anode copper. Falconbridge invested $10M at the smelter in order
to produce 170 kt/year of copper as early as 2006.

Falconbridge invested $1.5M in 2005 within the scope of
its action plan to reduce arsenic emissions at the Horne smelter.
Overall, the project will require an investment of $20M until 2008
and lead to a 50% reduction in arsenic emissions relative
to 2004.

The CCR copper refinery, located in Montréal, benefited from
an $18M investment to increase its output capacity from 300
kt/year to 370 kt/year. This additional capacity will allow
CCR to refine, as early as January 2006, copper anodes produced by
Inco at its Sudbury smelter.

In 2005, Québec mines produced nearly 40,000 tonnes of
copper. The Louvicourt polymetallic mine generated more than 40%
of Québec’s entire output. The LaRonde polymetallic mine generated
20% of Québec’s production.

The remaining copper producers were, in decreasing order:
Raglan, Troilus, Copper Rand, Bouchard-Hébert, and Joe Mann.

The Louvicourt mine located near Val-d’Or permanently ceased
operations on July 12, 2005. This mine was the most
important source of copper concentrate in Québec over the past
10 years.

On June 30, 2005, Falconbridge Ltd and Noranda Inc. concluded
their merger. The new company continued its activities under the
name of Falconbridge Limited.

Outlook for 2006

Refined copper consumption should continue its steady climb in
China, while demand in the United States should rebound, thanks in
part to reconstruction work required after the summer 2005
hurricane season, thereby contributing to significant growth
worldwide. However, mining output should increase even more
sharply in 2006, which will impact the refined copper supply,
also enhanced by the increased capacity of Chinese smelters. Thus,
the refined copper market should find itself in a surplus
situation.

With this anticipated surplus, copper prices are expected to
peak early in 2006 then gradually decline during the year.
However, the average annual price is expected to increase; in
fact, analysts have significantly upgraded their forecasts given
the sustained interest of investment funds. The latter will
undoubtedly continue to play an important role in the evolution of
copper prices, which largely explains the uncertainty prevailing
at the start of the year. Regardless of these concerns, the price
should remain fairly high in historic terms, namely buoyed by a
stronger demand than in 2005 and relatively low stock levels.
In fact, the low inventories will probably result in a very
volatile situation, where copper prices could namely react to
unforeseen disturbances in production.

In 2006, copper-producing mines in Québec will ship nearly
25 kt of copper overall. The LaRonde mine will generate
nearly 40% of this output, followed by the Raglan mine (30%). The
remainder will come from the Troilus, Copper Rand, and Joe Mann
mines.

Nickel

Global Setting

World consumption of primary nickel decreased in 2005,
due to significant production stoppages during the second semester
in the stainless steel industry, which represents nearly
two-thirds of its market. Thus, global stainless steel production
dropped substantially in 2005, although a particularly strong
hike took place in China, thanks to its expanding production
capacity. Nickel did however profit from greater demand for other
applications. Moreover, primary nickel consumption continued to
feel the impact of high nickel prices, which led to an increased
supply of recycled stainless steel and encouraged substitutes
through increased production of stainless steel varieties with
lower nickel contents.

Given this mitigated performance of demand, the increased
supply, although minor namely due to various production stoppages,
resulted in a global primary nickel market in a surplus situation.
In fact, stocks at the London Metal Exchange grew by about 70%.

True to form, the price of nickel remained extremely volatile
in 2005, ranging between a high of US$8.05/lb on May
12th, to a low of US$5.22/lb on November
1st, ending the year at US$6.07/lb, compared to
US$6.90/lb at the end of 2004. Thus, nickel prices peaked
during the first semester and declined afterwards, mainly due to
decreased demand from the stainless steel industry and
significantly higher stock levels at the London Metal Exchange.
The price nevertheless remained high in historic terms throughout
the year, given the relatively tight market conditions and the
interest of investment funds for commodities. Thus, the average
annual cash settlement price for nickel at the London Metal
Exchange climbed from US$6.28/lb to US$6.68/lb, a new record.

Among the highlights of the year 2005 in the global
nickel industry, note the start-up of commercial production at
Inco’s Voisey’s Bay mine, which made its first nickel concentrate
shipments in November. Moreover, the consolidation process
continued, namely with the announcement on October 11th
that both Inco and Falconbridge boards had approved the
acquisition by Inco of all outstanding common shares of
Falconbridge through a friendly public takeover bid. This merger,
should it receive the approval of market regulators, would namely
result in the creation of the world largest nickel producer.

Situation in Québec

The Raglan mine, located in the Ungava Peninsula, is the only
nickel producer in Québec. In 2005, production reached
22,000 tonnes of nickel, down 16.4% relative to 2004.
This drop is attributable to repairs and modifications at the
processing mill and to the processing of lower-grade ore.

Falconbridge invested $33M in 2005 to optimize the mill
at the Raglan mine.

Outlook for 2006

Global primary nickel consumption should increase considerably
in 2006, thanks to a stronger stainless steel production
industry in the western world. Chinese consumption will also
increase substantially thanks to its growing production capacity
of stainless steel. Demand for nickel should also profit from a
certain amount of restocking. Other nickel markets will
undoubtedly also contribute to a stronger demand.

Nevertheless, primary nickel supply will also increase, at an
even greater pace, thanks namely to production from the Voisey’s
Bay mine. The global market should therefore present a slight
surplus, remaining fairly tight however until the start-up of two
other important projects in 2007.

The average annual price of nickel in 2006 should remain
very high in historic terms, although several analysts forecast a
slightly lower price than in 2005. Factors such as the use of
recycled stainless steel, substitutes with lower nickel contents
and the behaviour of investment funds could have an important
impact, as seen in recent years. Furthermore, with market
conditions remaining relatively tight, nickel prices are expected
to remain volatile, namely reacting to production stoppages.

Improvements made to the grinding circuit at the Raglan mine
in October 2005, should bring about a 10% increase in mill
throughput. Nickel production for 2006 is expected to reach
25 kt.

Zinc

Global Setting

Refined zinc consumption grew at a slower pace compared to
previous years, due to problems encountered in the galvanized
steel industry in the western world. Consumption nevertheless
continued to profit from the vigorous demand from China, which
strongly increased its refined zinc imports in 2005, thus
remaining a net importer.

Global production from zinc mines also increased modestly
in 2005. Thus, the shortage of concentrates continued to
limit refined zinc output, which remained stable at best. The
global market for refined zinc therefore posted a second deficit
in as many years. Stocks at the London Metal Exchange decreased
significantly, by 37%, despite the influx of unreported stocks
during the year.

The average annual cash settlement price for zinc at the
London Metal Exchange shot up by 32% relative to 2004,
reaching US$0.627/lb, its highest level since 1990. After a
steep climb during the first quarter, the price gradually declined
until mid-July due to weaker demand from the galvanized steel
industry, as well as the presence of fairly high stocks,
especially with the influx of considerable amounts of unreported
stocks at the London Metal Exchange in June. However, the zinc
price eventually resumed its upswing, taking advantage of various
production stoppages, of the stock-depleting trend at the London
Metal Exchange, and of fears concerning damages caused by Katrina
to the London Metal Exchange stocks in New Orleans, which at the
time contained nearly 50% of its zinc inventories. In addition to
the obviously strong market fundamentals, the zinc price was also
buoyed by the growing interest of investment funds. Thus, the
daily quote ended the year at US$0.869/lb, its peak for the year
and its highest level since 1989.

Insufficient concentrate supply continued to plague smelters
in 2005, translating into lower treatment charges covered by
annual contracts for the fourth consecutive year. As we saw the
previous year however, rising zinc prices nevertheless allowed
smelter revenues, expressed in US dollars, to increase given the
presence of price participation clauses. Smelters did however
suffer from high operating costs, some having to operate at less
than full capacity due to the shortage of concentrates, not to
mention soaring power costs.

Situation in Québec

Breakwater Resources Ltd announced on
November 8, 2005, that it would restart the Langlois
zinc mine, located 40 km from Lebel-sur-Quévillon. The mine
should begin commercial production during the summer 2007.
Annual output is expected to be on the order of 54 kt of
zinc, for at least 7 years.

The CEZinc refinery in Salaberry-de Valleyfield operated at
full capacity in 2005; its output reached 275 kt of zinc.

The Bouchard-Hébert mine, located near Rouyn-Noranda,
permanently ceased operations on February 20, 2005. This
was the only mine in Québec where the main activity was the
production of zinc concentrate.

In 2005, zinc output from Québec mines reached 110 kt of
zinc. The LaRonde polymetallic mine generated more than 80% of
this figure. The Louvicourt and Bouchard-Hébert mines supplied the
rest.

Outlook for 2006

In 2006, global refined zinc consumption should grow at a
stronger pace than last year, thanks to the expected recovery of
the galvanized steel industry in the western world. China
nevertheless continues to be the driving force of this growth,
with its booming galvanized steel industry, remaining therefore a
net importer of refined zinc. Thus, as production continues to be
limited by the ongoing shortage of concentrates, the global
refined zinc market will remain in a deficit situation. Commercial
stocks will continue to dwindle, reaching extremely low levels.

Thus, among the base metals, zinc shows the strongest
fundamentals, which should allow its average annual price to
increase significantly in 2006, probably reaching record
highs. However, the evolution of zinc prices could be affected by
the behaviour of investment funds. Regardless of these concerns,
zinc prices will remain high in historic terms.

Early-year forecasts expected treatment charges to drop even
lower in 2006, but in light of evolving zinc prices, smelter
revenues should nevertheless continue to grow.

In 2006, the CEZinc plant should once again operate at full
capacity. The entire zinc production for Québec will essentially
come from the LaRonde mine.

Industrial Minerals

Brine  >>
Chrysotile  >>
Graphite  >>
Ilmenite  >>
Limestone  >>
Mica  >>
Peat  >>
Salt  >>
Silica  >>
Stone  >>
Talc  >>

Brine

In August 2005, Junex finished sinking well #7 in
Bécancour, where the daily output is 62,000 litres. Junex
currently has nine brine wells in production.

Also in 2005, Junex launched operations at its primary
processing facility to convert natural brine into a more
concentrated product.

Chrysotile

LAB Chrysotile Inc. currently manages the assets from four
mines, three of which are held by Mazarin (British Canadian,
Beaver, Bell), and one by Lac d’Amiante du Canada
(Black Lake). In 2005, LAB Chrysotile continued to
operate the Bell and Black Lake mines alternately.

In 2005, Mines Jeffrey Inc. continued operations at its open
pit mine, at a reduced rate of 60,000 tonnes of fibre per year.

Graphite

In 2005, graphite output at the Lac-des-Îles mine near
Mont-Laurier was lower than the previous year. However, prices
were higher than in 2004. Development of a new open pit was
undertaken in 2005. A feasibility study is scheduled
for 2006, to consider the possibility of using this ore
deposit exclusively to supply the Terrebonne facility.

In 2005, exfoliated graphite production at the Terrebonne
plant held by Timcal Canada Inc. was essentially stable relative
to 2004. The plant is supplied both by concentrates from the
Lac-des-Îles mine and by graphite concentrate imported from China.

Ilmenite

Located 40 km from Havre-Saint-Pierre, the Lac Tio mine
produced nearly 2.5 Mt of ore in 2005, and forecasts
for 2006 stand at 3.0 Mt.

In Sorel, at the metallurgical complex operated by QIT-Fer et
Titane, Rio Tinto will invest US$190M to allow the processing of
concentrates from its titanium sand deposit in Madagascar. As
early as 2008, part of the concentrate will by shipped to
Sorel for smelting.

Limestone

In October 2004, Graymont announced major investments at its
plants in Bedford and Marbleton. The company will invest $13M
until September 2006 at the Bedford plant to increase the daily
production capacity of quicklime from 400 to 650 metric
tonnes. This project consolidates the 70 existing jobs, and
helps keep the plant competitive. At the Joliette plant, Graymont
plans to invest $2M to expand the existing quarry in order to
secure a consistent supply for the plant.

Demand for limestone products, mainly cement, should increase
in 2006, at a pace sufficient to keep consistent pressure on
prices.

Mica

In 2005, sales at Les Produits Mica Suzorite Inc., the only
mica producer in Québec, were very good and similar to
2004 figures. The outlook for 2006 remains very
positive.

Peat

Peat production was relatively similar in 2005
and 2004, at more than 10 million bags. However, the
unit price rose by more than 15% in 2005 compared
to 2004. In 2005, five major peat producers were
responsible for more than 85% of the total production in Québec.

Salt

Mines Seleine, property of Rohm and Haas of Philadelphia,
maintained its sodium chloride (NaCl) production in 2005. The
salt produced is largely used as a de-icing agent for roads in
Québec, in other Canadian provinces and in the New England states.

Silica

In 2005, Exploration Québec/Labrador Inc. extracted more than
20,000 tonnes of silica from its Lac Daviault quartzite
deposit, near Fermont, to supply its main client (DuPont-Granirex)
in Thetford Mines.

Unimin Canada Ltd, the largest Canadian silica producer, owns
two deposits in Québec, a quartzite deposit in
Saint-Donat-de-Montcalm and a siliceous sandstone deposit in
Saint-Canut. Silica sand production plants are in operation at
both quarries. Production levels in 2005 were similar to
those in 2004, and are expected to remain the same
in 2006.

Stone

In 2005, production of dimension stone and construction
materials was essentially stable relative to 2004.

Glendyne Inc., the world second largest producer of natural
slate, plans to increase its production from 20,000 tonnes to
40,000 tonnes over the next few years. The processing plant
currently operates at about 90% capacity since March 2006.
Glendyne will invest $5M during the year to automate its
installations, in an effort to lower production costs to counter
the fierce competition from China and India.

AC Ardoise Gaspésie Canada Inc. plans to open a slate quarry
in Matapédia County, and a processing plant in Matapédia, in
Bonaventure County. These projects are in the first phases of
development.

In Saint-Mathieu-de-Rioux, Les Pierres Saint-Mathieu Inc.
began quarrying a red sandstone variety to be used as masonry and
landscaping stone.

In Les Bergeronnes, in the Côte-Nord region, a new granite
processing plant operated by Graniber Inc. opened in August 2005.
A million dollars were invested to acquire leading-edge equipment.
The company produces 2- and 4-cm-thick polished slabs
for kitchen counter manufacturers and stair makers in the North
American market.

Talc
(Steatite)

In October 2005, Les Pierres Stéatite Inc. expanded its
stone-cutting facility located on Range 7 in East-Broughton,
near the quarry. The company produces sculpting blocks, refractory
plates for stoves and funeral stones. Production levels markedly
increased in 2005 relative to 2004. The company hopes to
develop the U.S. market.

Mining investments, financing and taxation in 2005

The mining industry is a sector of the economy that
makes substantial yearly investments into mine complexes in order to
develop known deposits and continue mine production.

In addition, investments are also made towards the
exploration and development of new deposits to replenish ore
reserves

Exploration and deposit appraisal activities

For the second year in a row, exploration and
deposit appraisal expenditures broke through the $200M barrier
($227.2M in 2004, $209.2M in 2005). These high
expenditures mark a significant increase relative to the $94.1M
recorded in 2000.

In 2005, the bulk of expenditures were allocated
for off-mine-site exploration ($179.5M, 85%). Most of this work was
managed by junior companies ($111.1M) and major companies ($62.9M).
The prime target for exploration and deposit appraisal activities
was gold ($125.1M, 60% of expenditures incurred in Québec), and to a
lesser extent, base metals ($54.8M, 26%), diamonds ($21.4M, 10%),
and other mineral substances ($8.0M, 4%).

A detailed description of many exploration and
deposit appraisal projects carried out in 2005 in Québec is
available in the Report
on Mineral Exploration Activities in Québec 2005.

Exploration and Deposit Appraisal
Highlights

Gold in Northwestern Québec

Thanks to the impressive upswing of gold prices,
certain advanced projects reached significant milestones toward the
start-up of commercial production, among which Casa
Berardi, Goldex, and East Amphi.

Underground assessment work was undertaken or
continued on many advanced gold exploration projects. On the Lapa
property, near Cadillac, Agnico-Eagle Mines Ltd launched a work
program of nearly $40M. Probable reserves are estimated at
4.08 Mt grading 8.91 g/t Au. At the Kiena mine
complex, Wesdome Gold Mines Inc. carried out definition drilling in
the VC, 388, North, and Martin zones, and excavated two
exploration drifts on its Kiena/Wesdome project. Near Val-d’Or,
Alexis Minerals Corporation began excavating a 1.5-km
ramp in September 2005 and completed 18,000 m of drilling
on the Lac Herbin project, to test inferred resources currently
estimated at 1.07 Mt grading 7.3 g/t Au.

Interesting results were also announced on other
gold exploration projects. Drilling conducted by Globex Mining
Entreprises Inc. and Queenston Mining Inc. on the Wood-Pandora
project, located a few kilometres west of Lapa, encountered a
6.0-m interval grading 25.35 g/t Au. At the
lac Bachelor project near Desmaraisville, Metanor Resources Inc. and
Halo Resources Ltd conducted underground drilling and released a new
resource estimate of 0.84 Mt grading 7.79 g/t Au in
the measured and indicated categories. On the Windfall Lake
property, located in the Urban-Barry belt east of
Lebel-sur-Quévillon, Noront Resources Ltd intersected in drillhole a
gold-bearing stockwork grading 5.9 g/t Au over
7.05 m. On a contiguous property, Murgor Resources Inc.
encountered high-grade gold zones in drillhole
(10.46 g/t Au over 11 m).

Copper and Zinc in Northwestern
Québec

Falconbridge Ltd and Alexis Minerals Corporation
announced in March a significant discovery in the Rouyn-Noranda
mining camp. Drillholes on the West Ansil property intersected
45.7 metres grading 3.35% copper, 1.3% zinc, and
1.86 g/t gold. Near Val-d’Or on the Louvex project, about
1 km from the former Louvicourt mine, Alexis Minerals Corporation
and Novicourt Inc. intersected an alteration zone with stringer
sulphides over a core length of 235.9 m, including a
12.4-m interval grading 1.48% Zn.

Near Chibougamau, COGITORE Resources completed nine
drillholes to test the former Lemoine mine host sequence and
intersected 3 m grading 3.20% Zn and 0.31% Cu.
Campbell Resources Inc. also reported good results from several
drillholes testing the depth extension of the Corner Bay deposit,
including a 16.10-m interval grading
9.27% Cu.

Gold in the Baie-James Region

Virginia Gold Mines announced the signing of an
agreement whereby Goldcorp Inc. will acquire its Eleonore project.
Pursuant to the transaction, shares of Goldcorp will be issued to
shareholders of Virginia Gold Mines; the transaction is reportedly
valued at more than a half billion dollars. In 2006, Goldcorp
intends to actively pursue exploration and development on the
project. An initial resource estimate is expected in 2006. This
significant discovery in a new geological setting has spurred a
reassessment of the regional gold potential. Thus, Everton Resources
Inc. and Azimut Exploration Inc. reported the discovery of a
1.7-km-long gold-bearing trend on the A-Block of the
Opinaca property, contiguous to the north of the Eleonore property.
Grab samples collected in strongly metamorphosed sedimentary rocks
yielded assays ranging from 0.1 to 29.07 g/t Au.

Diamonds

North of the monts Otish, Ashton Mining of Canada
Inc. and SOQUEM Inc. continued drill-testing diamond-bearing
kimberlite bodies at Renard 2, 3, 4, 7, 8, 9, and 10, as well
as diamond-bearing kimberlite dykes in the Lynx system. In April, a
valuation of 459 carats of diamonds recovered from a
664-tonne bulk sample collected in 2004 from Renard 2,
3, 4, and 65, yielded a modeled value of US$88 per carat.
Summer fieldwork led to the discovery of an important kimberlite
dyke (Hibou) and of a series of kimberlitic boulders scattered
between the Renard cluster and the Lynx dyke system. In November,
the joint venture announced that the Renard 2, 3, 4, and
9 bodies could potentially host between 18.6 and
22.0 million carats of diamonds within an aggregate
23.2 to 27.5 Mt of kimberlitic material.

Nickel and Copper in Québec’s Far North

The Ungava Belt consistently yielded new and
promising nickel discoveries. Canadian Royalties Inc. uncovered two
new zones (Ivakkak, Tootoo West):

the Ivakkak zone yielded average grades of 1.76% Ni,
2.11% Cu, and 3.95 g/t Pt+Pd over a
22.5-m interval, including 9.5 m grading
3.3% Ni, 3.6% Cu, 1.6 g/t Pt, and
4.9 g/t Pd; and

the Tootoo West zone graded 1.10% Ni, 1.06% Cu, and
6.51 g/t Pt+Pd+Au over 19.0 m, including
2.88 m at 31.02 g/t Pt+Pd.

Total resources for deposits on the Raglan South
Nickel project held by Canadian Royalties Inc. are estimated at more
than 10 million tonnes. Knight Resources Ltd and Anglo American
Exploration (Canada) Ltd also reported a new discovery on their West
Raglan project. The Century zone, in the Greater Frontier area,
yielded grades of 2.16% Ni over 7.8 m, and 3.37% Ni
over 1.4 m.

Anglo American Exploration (Canada) Ltd and
Goldbrook Ventures Inc. reported the discovery of two Ni-Cu-Pt-Pd
showings on the Bélanger property:

the Pad1/R2 zone, with grades of 0.85% Ni, 1.49% Cu,
1.14 g/t Pd, and 0.14 g/t Pt over
24.73 m; and

the Timtu zone grading 1.01% Ni, 0.63% Cu,
1.81 g/t Pd, and 0.57 g/t Pt over 8.65 m.

Falconbridge Ltd has identified zone
5-8, located five kilometres east of the Katinniq mill,
as the next mining area at the Raglan mine. A 44.65-m
section in Lens 8H yielded grades on the order of 3% Ni and
0.94% Cu.

Stone

In the field of architectural stone,
A. Lacroix et Fils Granit ltée and Granijem Inc. continued
development work on deposits in Saint-Alexis-des-Monts and north of
Saint-Ludger-de-Milot, as well as north of Baie-Comeau and near the
Manic-3 hydroelectric dam. More than fifteen exploration projects
for slate and marble were reported in 2005, a record high in
many decades in Québec.

Financing of mineral exploration activities

Many exploration and deposit appraisal projects in Québec were
backed by public financings raised by mineral exploration
corporations on the capital market in Québec. These financings
take the form of common shares, flow-through shares
or debentures.

Amounts raised in Québec through the issue of common or
flow-through shares, for exploration purposes either in or outside
Québec, continued their upward trend, which remains uninterrupted
since 2002.

In 2005, a total of $158.6M ($132.4M in 2004) was raised
from Québec investors (especially in private placements) for
mineral exploration projects in and outside Québec. About 40% of
this amount served for projects in Québec.

If financings concluded in Québec partly profit exploration
outside Québec, the reverse is also true. In fact, most of the
funds raised by corporations exploring in Québec, regardless of
where their head office is located, comes from investors outside
of Québec. Even corporations with their head office located in
Québec find most of their financing outside of Québec. Globally,
more than half of the financing of Québec-based corporations comes
from non-Québec investors, either through the issue of common or
flow-through shares. Note that about a third of all off-mine-site
exploration and deposit appraisal expenditures incurred in Québec
by junior exploration corporations were made by Québec-based
juniors.

In 2005, flow-through share financing, a Canada-wide program
for which Québec offers very competitive conditions, accounted for
half of the financing raised by the main junior exploration
corporations with their head office in Québec.

In 2005, flow-through limited partnerships (mining and oil
& gas), which provide a considerable amount of financial
backing throughout the country, raised more than 1 billion
dollars, of which $80M to $100M comes from Québec investors. About
a third of this billion should serve for mineral exploration
within the country.

The importance of common share financings should not be
underestimated, nor should the substantial contribution of
institutional investors such as Sidex, Sodemex, the Société de
développement de la Baie-James, the Solidarity Fund QFL, etc.
Their contribution to the aggregate amount of financing raised in
Québec for exploration activities in Québec was in the order of
$10M in 2005.

The tax credit for resources, a tax incentive offered directly
to corporations for eligible exploration expenses incurred in
Québec, is a very popular measure. It leverages investments for
exploration corporations that choose to take advantage of the tax
credit.

Rising commodity prices observed in recent years, namely for
gold, which accounts for 60% of exploration expenditures in
Québec, as well as the current rush for diamonds and nickel are
two of the main factors that explain the greater amount of
financing raised from investors in Québec and elsewhere.

Securities Regulatory
Framework

Efforts to streamline the securities regulatory framework and
to harmonize regulations continued in 2005. A passport system
was namely implemented, which gives corporations access to capital
markets in participating provinces and territories, while dealing
only with the securities authority of their primary jurisdiction
and complying only with access regulations in their own
jurisdiction.

Regulation 43-101 respecting standards of disclosure for
mineral projects came into effect on
December 30, 2005. This regulation, an updated version
of the initial Regulation 43-101, in effect since
February 1, 2001, specifies the obligations of issuers
and qualified persons. It details standards of disclosure and
requirements for corporations releasing information to the public
and for qualified persons preparing such information. The new
regulation maintains the concept of qualified person and the
obligation for a corporation to file a technical report for each
important property held by the corporation in specific situations:
financings, acquisitions, material change in geological or
miningworks, etc.

For more information, please consult the website of the Autorité des marchés financiers.

Mining taxation in 2005

Tax Credit for Resources

Mining corporations can take advantage of a tax
credit for resources that may reach 45%. The following table shows
the various rates that apply since March 30, 2004:

Corporations that develop no mineral resource

Other companies

Refundable portion

Non-refundable portion

Total

Refundable portion

Non-refundable portion

Total

Expenses relating to mineral
resources

Near North or Far North

Ensewhere in Québec

38.75%

30%

6.25%

15%

45%

45%

18.75%

15%

26.25%

30%

45%

45%

Expenses relating to natural
resources (cut stone)

15%

s.o.

15%

15%

s.o.

15%

This credit is taxable under the Taxation
Act, the Income Tax Act and the Mining Duties
Act.

Only the credit granted for eligible expenses incurred after
June 12, 2003 is taxable.

Flow-Through Share Regime

The regime is permanent since March 30, 2004.

The regime in Québec awards investors a basic deduction equal
to 100% of the cost of flow-through shares. Individual investors
can deduct an extra 25% when the exploration expenses are incurred
in Québec by a corporation that develops no mineral resource. An
additional 25% deduction may be granted when exploration is
carried out from the surface. Individual investors may therefore
claim a global deduction of 150% for surface exploration expenses
incurred in Québec renounced on their behalf.

For flow-through shares issued after
March 30, 2004:

Deductions regarding flow-through share issue expenses may be
transferred to investors;

The capital gains exemptionmay be claimed.

Federal Tax Reform

As announced in the 2003 federal budget, the
new federal taxation system for resource-related income is being
gradually implemented over a period of five years starting
in 2003. It includes the following measures:

Introduction of a deduction for Crown royalties and mining
taxes to offset the elimination of the existing 25% resource
allowance;

Reduction from 28% to 21% of the tax rate on income earned
from resource activities;

Introduction of a 10% tax credit for mineral exploration. This
credit is granted to corporations that directly incur eligible
exploration expenditures for the following commodities: diamonds,
base metals, precious metals, and industrial minerals that,
through refining, become base metals or precious metals.

Starting in 2007, the Québec taxation system will
be harmonized with that of the federal government, in terms of
replacing the 25% resource allowance with a deduction for royalties
and mining duties actually paid.

The mining environment in 2005

Environmental regulations

The Department has launched a review of its regulations
concerning financial guarantees required pursuant to
rehabilitation plans. This review has become necessary to reduce
the financial risk linked to mine closures and assumed by the
State. The recent abandonment of the Manitou and East Malartic
mine sites has increased the State’s financial burden by more than
$40M. A comparative analysis has revealed that Québec is the only
jurisdiction that requires financial guarantees for only 70% of
the rehabilitation costs of tailings areas. Elsewhere in Canada,
financial guarantees must cover the total cost of rehabilitation
of the entirety of the mine sites.

The Sustainable Development bill and strategy were subject to
public consultations during the winter 2005. More than
450 memoirs were submitted. The bill was adopted in
December 2005. Moreover, the government also intends to add
the right to live in a healthy environment in the Charter of Human
Rights and Freedoms. All departments and government agencies,
including the Ministère des Ressources naturelles et de la Faune,
must prepare an action plan that complies with the new
legislation. Each new mining project must from now on be analyzed
in terms of this new reality.

In February 2005, the Ministère du Développement durable, de
l’Environnement et des Parcs adopted its new version of
Directive 019 for the mining industry. This directive sets
guidelines for the issuance or renewal of certificates of
authorization required under the Environment Quality Act. Most of
the new requirements for final effluents are designed to be
harmonized with parameters set under federal regulations. The
directive also includes a procedure to measure pollution loads
discharged into the environment, various management modes for
mining wastesbased on the danger they pose as well as specific
monitoring requirements for minesites in the post-mining and
post-rehabilitation period.

The draft regulation on air quality was published in the
Gazette officielle du Québec on November 16, 2005. This
draft regulation sets, for all sources of contamination, threshold
emission values for certain contaminants that lead to atmospheric
pollution problems. Furthermore, it makes it mandatory to install
equipment to measure and continuously record emissions and to
implement emission control measures. This new regulation could
have a significant economic impact for certain mining facilities,
particularly smelters, refineries and pellet plants.

In November 2005, Bill 116 was modified to exclude work
carried out on mine tailings areas from the application of Act
R-20. Thus, installation, maintenance and repair work on
production equipment will no longer be subject to collective
agreements in effect in the construction industry. According to a
report by the Québec Mining Association, if tailings dam
development work was subject to the construction decree, then the
total cost for the latter would increase by more than 20% on
average, which would mean an additional expense of $50M to $60M
for the mining industry.

Rehabilitation

In 2005, the Department invested nearly $160,000 for
environmental monitoring, maintenance and follow-up of mine sites
retroceded to the State.

A considerable effort was expended to identify an adequate
funding mechanism for the rehabilitation of abandoned mine sites,
the cost of which is estimated at $100M ( ± 15%).

A preliminary rehabilitation plan for the abandoned Manitou
mine site, in the Abitibi-Témiscamingue region, was prepared
in 2005. Part of the work will be carried out in 2006.

With the cooperation of local partners, stabilization and
revegetation work was carried out in the spilled tailings area at
the abandoned Eustis mine site, in the Estrie region.

During the summer 2005, on the East Malartic mine site, the
Department had emergency spillways built for the tailings
depositas well as a settling pond. It also fenced in the perimeter
of potentially unstable zones. In December, the Department
obtained the Conseil du Trésor‘s authorization to sell all
moveable and immoveable assets on the mine site in a single lot.

In April 2005, the Department came to an agreement with
Falconbridge Ltd regarding the rehabilitation of the Normétal mine
site, where the tailings generate acid mine drainage.
Rehabilitation work undertaken in summer 2005 will continue
in 2006.

Research and Development in 2005

In 2005, the NSERC-Polytechnique-UQAT Chair in Environment and
Mine Waste Management received a second 5-year mandate. The
Department is involved in the science and steering committees of
the chair, and also offers the Lorraine minesite as an
experimental field site.

The Department continued its involvement with the Mine
Environment Neutral Drainage (MEND) research and technology
transfer program. In 2005, the MEND’s research budget
amounted to $125,000.

The Department was involved in organizing and hosting
the 2005 Symposium on Mines and the Environment, which took
place in Rouyn-Noranda in May and which was attended by more than
175 delegates.

Among the research projects SOREDEM (Société de recherche
et développement minier) is involved in, we can mention a
project to develop an anti-vibration handle for pneumatic
rockdrills. The vibrations picked up on the handles of pneumatic
rockdrills affect many operators, who suffer from Raynaud’s
syndrome (white hand disease). Tests with the new handle indicate
it can reduce harmful vibrations passed on to the operator
by 60%. In 2005, SOREDEM oversaw 13 development
projects totalling more than $1M.

Created in 2003 by the Université du Québec en
Abitibi-Témiscamingue (UQAT) and Télébec Mobilité, the
Laboratoire de recherche en communications souterraines
(LRCS) was created to develop a versatile system of underground
communications to improve mine worker safety. On June 6
and 7, 2005 in Val-d’Or, the LRCS held its first
international workshop on wireless telecommunications in
underground and confined settings, which drew more than 75
international experts. The gouvernement du Québec granted $50,000
to support this event. Moreover, the new offices of the LRCS,
located at the CANMET experimental mine, were inaugurated on
September 16, 2005.

The Centre national des mines in Val-d’Or, built at a
cost of $5.6M, was officially inaugurated on
September 23, 2005. It hosts four classrooms, a
laboratory and a school plant. Here, courses on how to operate
ore-processing machinery will be given (900 hours) to miners
who wish to hone their skills. Students will learn how to process
all the different types of ore found in Québec. Sixteen students
were registered for the fall 2005 semester. The Ministère
de l’Éducation du Québec invested $4.7M in this project.

In 2005, COREM unveiled its business plan for 2006-2008.
COREM’s strategy namely involves increasing its client base of
member companies to ensure the consortium’s future. It also wishes
to secure solid financial support from both levels of government.
COREM has a staff of about 90 employees and an annual budget
of nearly $10M.

The gouvernement du Québec awarded an amount of $140,000 for
the start-up of the MISA agency (Mines, Innovations, Solutions,
Applications). This agency was created in February 2005, to
implement the strategic plan for the Underground Techno-Mines
niche of excellence and to coordinate and monitor projects arising
from the 2005-2010 action plan. MISA’s main project
involves a study on the specific needs of the industry in terms of
training and manpower within a 15 to 20-year timeframe.

A new generation of rockdrills is currently coming out in
South Africa. After the advent of pneumatic and water-powered
drills in the 1990s, now electric rockdrills are making an
entrance. According to Hilti South Africa, more than 500 of
these rockdrills are now in operation, and this figure should
climb to 1,500 by the end of 2006. The arrival of these
drills in Québec would signal the first step towards total
electrification of mining operations.

CONSOREM (Mineral Exploration Research Consortium) is an
applied research structure focussing on mineral exploration
technologies in Québec. It represents a link between the various
stakeholders in the mineral industry from the private sector, the
government and universities. Research projects at the CONSOREM
revolve around major themes, as follows:

Thematic and data integration projects on specific ore
deposit settings;

Methodology research projects to guide exploration;

Opportunity studies to explore new concepts, new markets for
specific commodities or new exploration models not yet applied
in Québec.

CONSOREM included 13 industrial and institutional members
in 2005. The Department continued its participation in the
consortium with financial support ($90,000) and by taking an
active role in the research steering committee and the board of
directors.

Strategic Activities

First Nations

By signing the “Paix des Braves” and “Sanarrutik” agreements,
the gouvernement du Québec has namely pledged to encourage Cree
and Inuit involvement in the mining industry. The government also
wishes to come to an agreement with the Innu nation. Support to
native mining funds is a good example of the government’s
commitment to promote the economic development of the First
Nations.

Three native mineral exploration funds, for which the
Department granted $900,000 in financial support during the
2005-2006 fiscal year, are currently active:

The Nunavik Mineral Exploration Fund, active since 1998;

The Nitassinan Innu Mining Fund, active since March 2000;

The Cree Mineral Exploration Board, created in March 2002.

In 2005, the Troilus gold mine, north of Chibougamau, employed
70 Cree workers (20% of its workforce), whereas 65 Inuit
worked at the Raglan nickel mine in Nunavik (14% of its
workforce). Moreover, more than 50 Cree and Inuit prospectors
worked for companies exploring in the Baie James region or in
Nunavik.

Copper Plan

In order to promote the discovery and development of new
copper deposits, needed to stabilize supply in concentrate at the
Horne smelter, the gouvernement du Québec supported mineral
exploration by renewing and improving existing tax measures and by
generating exploration targets in northwestern Québec.

At the request of the Minister of Natural Resources and
Wildlife, the Copper Plan committee, created in
November 2004, drew representatives from the Québec Mineral
Exploration Association, the Québec Mining Association, the
Noranda Coalition, SOQUEM, the Ministère des Ressources
naturelles et de la Faune, and the Ministère du
Développement économique, de l'Innovation et de
l'Exportation. On June 1, 2005, the committee
submitted a report to the minister, recommending the urgent
implementation of a Copper Plan, which namely calls for increased
geoscience activities by the Department, in order to identify
areas favourable to copper discoveries.

In 2005, the Department consulted industry members as well as
scientific and regional stakeholders to build a consensus on
priorities in terms of geoscience work that needs to be done and
on the best approach to involve federal authorities, regional
players and the private sector in funding these activities.

Québec’s Strategy for Protected
Areas

The Department’s role in Québec’s Strategy for Protected
Areas is to contribute to the creation of protected areas
while attempting to minimize social and economic impacts. As of
July 2005, Québec’s network of protected areas includes
1,265 sites covering a total surface area of nearly
97,000 km2, i.e. 5.8% of its territory.
The strategy aims to protect 8% of the total surface area of
Québec, namely 133,000 km2, by 2008.

In 2005, the Department’s efforts were focussed on assessing
new areas of interest in the natural provinces of the Abitibi and
Baie-James Lowlands, the Central Laurentians and the Mistassini
Highlands.

On December 13, 2005, the National Assembly adopted
Bill 121, the Act to amend the Mining Act, which
namely gives the Minister of Natural Resources and Wildlife the
power to classify outstanding geological sites. In order to ensure
the preservation and protection of Québec’s geological heritage,
this act makes it possible to exclude mining activities in these
areas, also recognized as protected areas.

National Diamond Strategy
Committee

The National Diamond Strategy Steering Committee, with
representatives from the private sector, the federal, provincial
and territorial governments, held a Round Table in Montréal in
May 2005. More than 100 delegates from Europe, South Africa,
Israel and Canada discussed possible mechanisms to implement the
Strategy. A report detailing the consensus reached during the
plenary session was released in June.

During its first meeting in June, the board of directors of
the Canadian Diamond Business Development Centre, based in Matane,
approved its action plan for the 2005-2006 fiscal
year.

During the Mines Ministers’ Conference held in September in
St. Andrews, New Brunswick, the provincial and territorial
Mines Ministers endorsed the Terms and Conditions for the
Implementation of the Strategy. They also asked the steering
committee to proceed with the creation of the Multi-Stakeholder
Coordination Body (MSCB) and accepted Québec’s offer to host the
MSCB for its first few years of existence.

Mr. Brendan Bell, Northwest Territories minister, and
Mr. Pierre Corbeil, Québec minister, invited the federal
government to take part in the creation of the Multi-Stakeholder
Coordination Body, charged with the implementation of the
Strategy.

In November, Mr. Brendan Bell, Northwest Territories
minister, announced his government’s decision to withdraw from the
Strategy implementation.

Geoscience Work by the
Department

In 2005, the Department focussed its efforts on identifying
new exploration targets for the mineral industry:

During the Prospectors and Developers Association
Convention, which took place in Toronto in March 2005, the
Department released the results of its copper potential
assessment for northwestern Québec, based on existing geoscience
data, which outlined 155 exploration targets.

During the year, the Department produced 132 new gold
potential maps for the Abitibi. More than 300 new targets
considered as highly favourable for gold were defined.

Fieldwork essentially consisted of local interventions in
strategic areas:

In the Abitibi and Baie-James regions, fieldwork was
conducted in areas targeted for their copper potential, namely
the Blake River Group west of Rouyn-Noranda, the Grenville Front
east of Chibougamau, the area east of Matagami, and the
Urban-Barry greenstone belt.

Elsewhere in Québec, fieldwork was conducted to study
Ni-Cu-PGE occurrences in the Mauricie region,
aggregate deposits in the Capitale-Nationale
region, and dimension stone in the Grenville, along the fleuve
Saint-Laurent.

The Department continued its geoscience data integration as
well as its regional syntheses. The main projects underway are
3D modelling of Abitibi geology, a geological and
metallogenic synthesis of Québec’s Far North, the preparation of
geological maps for the Grenville Province and the Abitibi, as
well as surficial deposit maps for Québec’s Near North.

Québec Exploration 2005

The annual Québec Exploration event took place last
November 21 to 24, under the theme “On Target!”. The fruit
of a partnership between the Department and the Québec Mineral
Exploration Association, this meeting of mineral exploration leaders
in Québec drew nearly 1,300 delegates from Québec and Canada.
The event took place under the honorary chair of Mr. Sean Boyd,
President and C.E.O of Agnico-Eagle Mines Ltd. The theme for the
next edition, scheduled for November 20 to 23, 2006,
will be “Exploration at its Best!”

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© Gouvernement du Québec, 2006