Signs abound that enthusiasm for new iron ore mines in the Labrador Trough have tapered off since February 2011 when the spot price was nearly $190 a tonne. Since then, prices have been on a roller coaster, which experienced more downs than ups. They dipped as low as $87 last September, soared back up over $150 in February, and then tumbled back down to below $115 in June.
Coinciding with that volatility, Canadian National Railway suspended a feasibility study on a new $5 billion rail line to serve potential new mines in the Labrador Trough. Mining giant Rio Tinto has put up for sale its 58.7 per cent interest in Iron Ore Company of Canada, one of the Trough’s and Canada’s largest iron ore producers.
Champion Iron Mines Ltd., one of the promising junior players in the Trough, abruptly pulled out of its participation in a new multi-user $220 million multi-user iron-ore port at Pointe-Noire in Sept-Îles, Que. And Cliffs Resources shut down indefinitely its pelletizing plant at Pointe-Noire.
Despite those setbacks, the consensus among financial analysts and economists who follow the trials and tribulations of the iron ore industry, as well as of industry insiders, is that long-term prospects for ramping up iron ore production in the Trough remain solid.
China drives iron demand
Continued economic growth in China and its relentless urbanization is driving worldwide demand for steel and its main feedstock, iron ore. While China’s growth has cooled from the double digits of a few years ago, it is still expected to grow at seven or eight per cent annually for years to come — barring any major fiscal catastrophe. China needs steel to build railways, bridges, buildings, and consumer items, such as cars and appliances that its ever-expanding middle class can afford and demands.
“If the growth rates are anywhere near what they have been in the recent past, there won’t be enough capacity coming out of Australia to satisfy this stuff,” said Dr. Wade Locke, a Memorial University economist who co-authored an economic impact analysis or iron mining in Labrador last September for the Newfoundland and Labrador government. “So I wouldn’t expect prices to be depressed for a long period of time and not much below what they are now.”
The 102-page report outlined three scenarios in which Labrador’s base production increases in the next two decades. In the most ambitious scenario, production in Labrador would increase to 81.1 million tonnes annually compared to 26 million for the base case. Expenditures would rise in Scenario 3 to $123 billion compared with $40 billion from existing projects, what the report calls the base case.
“The economic impacts resulting from expansion activities are substantial,” the report said, estimating that person years of employment would rise to 515,000 in Scenario 3 compared with 157,000 person years in the base case. While his study looked only at Labrador operations in the Trough, the same principles apply to the Québec side “without a doubt,” he said.
New multi-user port on-time and on-budget
Even Champion, while announcing it was stepping back and reassessing its strategic options, said in a news release that it remains committed to developing its Consolidated Fire Lake North Project in Québec. Meanwhile the new multi-user port at Sept-Isles is on budget and on time to meet its March 31, 2014 deadline for completion, confirmed Pierre Gagnon, President and CEO of Sept-Îles Port Authority.
After that, it’s up to the remaining mining companies that helped finance the project, as well as other potential users, to bring their ore to market. “We are really satisfied with the construction and the quality of construction so far,” Mr. Gagnon said, noting that the Port had undertaken a quality control review of the project in early July. Mr. Gagnon declined to comment on the Champion situation, although he did point out that “there’s guarantees when you have a contract.”
Once completed, the deep-water terminal will be able to load ore onto two Capesize vessels simultaneously. That will add at least 50 million tonnes of annual capacity on top of the 34 million tonnes the port expects to handle this year, he said. Most of that is from the Iron Ore Company of Canada (IOC)’s terminal on the city’s side of the bay, with the remainder from Cliff Resources’ existing dock on the Pointe-Noire side. By the end of this decade, Mr. Gagnon predicts, Sept-Îles will handle more than 100 million tonnes of iron ore annually. Even then, Canada will still be a small player in a world that currently produces 2.8 billion tonnes of iron each year.
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