Commentary: Tough markets demand a rethink of rail in Labrador Trough – by Glen Ireland and Mark Apli (Northern Miner – February 13, 2015)

The Northern Miner, first published in 1915, during the Cobalt Silver Rush, is considered Canada’s leading authority on the mining industry.

During its successful 2014 election campaign, Quebec’s Liberal Party vowed to revive Plan Nord — a cherished blueprint for opening up the province’s vast northern mineral wealth for development. Brainchild of former Liberal Premier Jean Charest, the plan was shelved for two years after his defeat to the Parti Québécois in 2012.

The mining industry has recently given its strong support for Premier Philippe Couillard’s refreshed Plan Nord, which includes an ambitious, greenfield 400+ km multi-user railway corridor and port connecting stranded mineral deposits in the legendary Labrador Trough to Sept-Îles on the coast. Energy and Natural Resources Minister Pierre Arcand, Plan Nord’s helmsman, announced in October 2014 a major technical study of the project by Montreal-based Canarail, whose fees will be paid by Quebec taxpayers and supportive junior miners.

While “Plan Nord redux” now appears to be back on track, some awkward but important questions are being asked: Can an infrastructure mega-project in the Labrador Trough be justified at current, heavily-depressed iron ore prices? And, is a new railway corridor really the only viable logistics solution for planned iron ore mines?

Soon after Premier Couillard’s government took office, a flood of iron ore from newly-expanded mines in Australia’s Pilbara, combined with perceived weakness in core demand markets, drove prices from US$130 per tonne to US$70 per tonne — a five year low.

Many analysts predict that iron ore prices will remain soft for years, due to market oversupply meeting continuing global economic weakness and lower-than-expected public infrastructure spending.

The viability of operating iron ore mines and development projects alike is under threat, including in West Africa, China and the Labrador Trough.

While closure of high-cost iron ore mines and the gradual rebalancing of supply and demand will eventually support improved prices, falling energy costs could prolong this process. In any event, better prices will only help producers that survive the cull.

So, within this challenging macro-environment, will the Labrador Trough be a survivor or a victim?

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