Labrador Trough positioned to feed Canada's iron-ore exports

10th August 2012 By: Simon Rees - Creamer Media Correspondent

TORONTO (miningweekly.com) – While the world worries about the eurozone debt crisis, China’s economic model and US stagnation, mining operators and developers in the Labrador Trough, an iron-ore belt that extends through Canada’s northern Quebec and Labrador, are confident of weathering the storm and continuing to expand.

“Production could grow by a yearly compounded growth rate of 35% over the next five years,” the mines branch of Newfoundland and Labrador’s Department for Natural Resources said in its most recent edition of ‘Minfo’.

The bullish outlook is predicated on China’s desire to extend seaborne trade in iron-ore away from Rio Tinto, Vale and BHP Billiton. More significantly, the nature of the ore itself makes it an attractive drawcard to steelmakers, owing to its holding less contaminants when compared with material from Australia or Brazil.

“Labrador Trough ore remains attractive because it is one of the cleanest in the world; it holds less contaminants such as alumina and phosphates,” Alderon Iron Ore’s VP for business development, Simon Marcotte, explained.

“If you’re a steelmaker you want a ‘sweetener’ ore, such as material from the Labrador Trough. This enables you to blend it with ores from Brazil or Australia and allows for greater volumes to be used.”

Alderon remains confident of success despite the current slide in spot iron-ore prices. Benchmark 62%-grade iron-ore dipped to $114.90/t on August 8, down $1.30 from August 7, Reuters reported on August 9. “The boom is here to stay at $100/t; even at $80/t or $70/t,” Marcotte said. “As long as [Alderon] has something above $62, we have the green light.”

The company is developing the Kami iron-ore project in the Wabush Lake area, near Labrador City. The immediate mining area, which straddles provincial boundaries between Quebec and Labrador, also hosts significant operations and development sites, including those of ArcelorMittal Mines Canada, a division of ArcelorMittal, Cliffs Natural Resources, Champion Minerals and the Iron Ore Company of Canada (IOC), a subsidiary of Rio Tinto.

Based on a cut-off grade of 20% iron (Fe), the total measured and indicated resources for Alderon’s project are 1.1-billion tons, grading 29.8% Fe. Inferred resources are 277.4-million tons at 29.5% Fe. Initial output will be eight-million tons a year and an expansion programme would then take this to 16-million tons a year.

Of the initial eight-million-tons-a-year rate, 60% will be acquired by Hebei Iron and Steel Group, China’s largest steelmaker. Its material will be secured at a 5% discount to the market price. In return, Hebei will buy 19.9% of Alderon for C$88-million ($88.75-million) and buy a 25% stake in the project for C$106-million. Hebei will also assist in debt financing.

“The transaction [with Hebei] will be closed shortly,” Marcotte said.

INFRASTRUCTURE DEVELOPMENT

“Iron-ore is a bulk commodity; the key word being bulk. It’s all about the infrastructure,” he added.

Alderon will build a rail link of about 15 km to reach the main line, run by IOC. “Legally, IOC has to carry our product at a commercial rate. Negotiations are under way with IOC and an agreement should be reached in two to three months. There’s plenty of capacity for everyone,” Marcotte said.

Alderon concentrate will be exported from Sept-Îles port. “We now have capacity reserved at the port,” he said, referring to Alderon’s agreement with the Sept-Îles Port Authority that was announced on July 16. The company will pay C$20.46-million in two phases for eight-million tons a year iron-ore shipping capacity at a new multiuser, deep-water dock that will be built at Pointe-Noire, Sept-Îles.

Other companies with expanding output have also paid for Pointe-Noire shipping capacity. New Millennium Iron will invest C$38.4-million to secure 15-million tons a year capacity; Tata Steel will pay C$12.8-million for five-million tons a year; Labrador Iron Mines Holdings will pay C$12.8-million in two instalments for five-million tons a year; and Champion Minerals will spend C$25.6-million for ten-million tons a year.

Canada’s federal government will invest up to C$55-million in the C$220-million dock construction project, which would come on stream with a 50-million-ton-a-year shipping capacity. This will be expanded to 100-million tons a year capacity by 2017.

“It is the growth of mining in the region that drove us to expand,” Sept-Îles port director of corporate affairs Patsy Keays, told Mining Weekly Online. Planning work started as early as 2007, she added.

“Dredging and preparation work will begin shortly [but] the main construction work will start next year and we are hoping for a mild winter to assist us. The dock must be ready and operational by March 30, 2014.”

Initially, the Pointe-Noire dock will not be able to accept Chinamax-size vessels. “Extra dredging will be necessary to bring the depth to 25 m for Chinamax ships, but this will only be done if there is a need for it. Right now, it’s not the case,” Keays said.

No doubt the government of Quebec hopes Chinamax vessels will eventually use Sept-Îles port. “An election period in Quebec is approaching and the incumbent party is looking to highlight how the mining industry has helped in job creation and brought money into the province,” Institut de la Statistique du Québec mines and mining specialist Raymond Beullac said.

Quebec is also pushing ahead with Plan Nord, which was unveiled on May 9, 2011. The plan aims to open up the northern region to further resource extraction, including operations for base metals, precious metals and iron-ore. It will have a life span of 25 years, with estimated levels of private and public investment expected to reach more than C$80-billion. On July 17, the provincial government announced the plan’s latest phase: a C$200-million financial assistance package for the development of municipal infrastructure projects.

Quebec’s confidence, like Newfoundland and Labrador’s, is also based on demand from China, India and wider Asia remaining robust. “There are a lot of junior operations being backed by major companies in India and China,” Beullac said.

“But north Quebec is rough country, a tough territory,” he warned. The work involved will not be easy and many projects, including iron-ore operations, will rely on robust prices to stay viable. “Hopefully the iron-ore prices will still be there to justify the new projects and the development of rail and other infrastructure projects,” Beullac said.