CIM Magazine

 

Title: Mines react to CN feasibility suspension

Sub-title: Feasibility study was to look into new rail capacity from the iron-ore rich Labrador trough region and port facility development

 

CNs suspension of a feasibility study related to rail capacity to haul iron ore from the resource-rich Labrador trough to the port town of Sept-Iles and to building new terminal capabilities there, has sector players reassessing their options.

 

“Production at our Kami Project is not scheduled to start until 2016, which gives us considerable flexibility,” said Ian Chadsey, a spokesperson or Alderon Iron Ore Corp. “We are located close to existing rail lines, which currently have more than enough capacity, so we should be OK.”

 

CN, the Caisse de Depot et de Placement du Quebec and five mining companies signed up to assess projected costs and the engineering parameters related to the proposed 800 kilometer rail network and engineering infrastructure.  These included Cliffs Natural Resources, Labrador Iron Mines Holdings, New Millennium Iron Corp., Cap-Ex Ventures Ltd. and Alderon.

                                                                                                        

However the project was short-lived. Despite the reported progress during the past six months, CN cited existing market realities, notably “anticipated delays with mine development projects in and around the Labrador trough,” as justification for its move. Conflicting construction schedules and diverging needs for each specific project made it hard for the rail carrier to round up the iron ore volumes needed to support the new capacity. The fact that players such as Adriana Resources and Century Iron Mines decided not to join the group, also played a role.

 

Reactions to the feasibility study halt were mixed. For Labrador Iron Mines Holdings the impact is limited says a spokesperson. “Our facility has been producing for some time and we thus have access to existing transport solutions,” says Keren Yun, vice-president (investor relations and communications). “While we agreed to participate, it was only at minimal cost, to see what alternatives could be made available. However the fact that projected completion date for the new line, was only in 2017-2018, reduced somewhat its potential value to us.”

 

New Millennium Iron for its part issued a statement noting that while the projected rail solution was a possible option to transport production from its Taconite Project, to the coast, its base case is to transport product through a Ferroduct. “This suspension will (thus) have no impact,” says Dean Journeaux, the company’s president and COO.

 

The resource rich Labrador trough, which runs from Ungava Bay 1,600 kilometers south, straddling the Quebec and Newfoundland and Labrador borders, has hosted iron ore mining operations for almost 60 years. However the region has been attracting increased attention recently, as growth in emerging economies has driven up demand.

 

Yet development challenges abound. During tough economic times investors are particularly hesitant about fronting the hundreds of millions (and sometimes billions) of dollars, required to get such operations off the ground. The reticence is exacerbated by the region’s relative isolation from existing infrastructure, particularly the port facilities needed to send production off to major markets. In fact CN’s move is boosting the hopes of promoters such as Oceanic Iron Ore Corp., which is looking for partners to develop resources that are closer to the coast.

 

Yet while the rail feasibility project is off the table for now, it is unclear how long it will remain so. When the initiative was announced, the price of iron ore, which is primarily driven by demand from China (which consumes an estimated 60 percent of global production) languished below USD $90.00 per dry metric ton. However since then prices, driven by shrinking inventories (which were at a three-year low in mid-February), have bounced steadily back up. At this writing, iron ore was trading on the spot market in the USD $159 per ton range.

 

This stronger pricing power, which though far from all-time highs and balanced by low-cost production facilities currently under construction world-wide, provides considerable incentive get product to market as fast as possible. How these facts on the ground will mesh with the long lead times needed to build additional rail capacity, should keep industry watchers on edge during the coming months and years.

 

peter@peterdiekmeyer.com

 

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