By Theo van de Kletersteeg
FOR PORT OF SEPT-ÎLES, IRON ORE IS THE ELEPHANT IN THE ROOM. IN 2010, 22.3 MILLION TONNES OF IRON ORE WERE SHIPPED THROUGH THE PORT. OF THIS VOLUME, 20.0 MILLION TONNES WERE SHIPPED BY THE PORT’S TRADITIONAL IRON ORE CUSTOMERS (IRON ORE COMPANY OF CANADA AND WABUSH MINES), WHILE 2.4 MILLION TONNES WERE SHIPPED BY CONSOLIDATED THOMPSON IRON ORE MINES AS INITIAL SHIPMENTS FROM ITS BILLION TONNE DEPOSIT AT BLOOM LAKE, QUEBEC. BY 2011, TOTAL IRON ORE SHIPMENTS THROUGH THE PORT INCREASED MARGINALLY TO 22.9 MILLION TONNES: SHIPMENTS BY THE PORT’S TRADITIONAL CUSTOMERS FELL BY 2.5 MILLION TONNES, BUT WERE OFFSET BY INCREASING SHIPMENTS BY CONSOLIDATED THOMPSON.
Consolidated Thompson was acquired in 2011 by Cliffs Natural Resources, which also owns 100 per cent of Wabush Mines, one of the Port’s “traditional” customers. In 2011, exports of iron ore (as lump products, concentrates and pellets) represented 88 per cent of the Port’s tonnage volumes. Just over 50 per cent of iron ore exports were destined for Asia (mostly China), while 20 per cent was destined for Europe, and 27 per cent for buyers in North and South America. Shipments of iron ore for domestic consumption represented about 5 per cent of total iron ore shipments.
Iron Ore Company of Canada (IOC), the largest Canadian producer of iron ore, operates a mine, concentrator and pelletizing plant in Labrador City, Labrador, and private port facilities just East of the City of Sept-Îles. IOC also owns and operates a railway from the mine site to its port. This railway is a common carrier, which is used not only by IOC, but also by Cliffs Natural Resources and others. IOC, which expects to ship 18.2 million tonnes in 2012, has a present capacity of 23.3 million tonnes, which is being expanded to 26 million tonnes by 2013. The company is studying the feasibility of expanding its output to 50 million tonnes by 2016, and is considering pathways for further expansions beyond 50 million tonnes. IOC is owned by Rio Tinto (58.7 per cent), Mitsubishi Corporation (26.2 per cent) and Labrador Iron Ore Royalty Corporation (15.1 per cent).
Cliffs Natural Resources owns 100 per cent of the Wabush mine and concentrator in Wabush, Labrador, as well as a pellet plant at Pointe-Noire, across the Bay from Sept-Îles. The mine has a rated capacity of 5.6 million tonnes. Cliffs also owns 75 per cent of the Bloom Lake Mine in Fermont, Quebec, with a present rated capacity of 8.0 million tonnes. Cliffs recently announced that it intends to produce a higher grade iron ore concentrate product at Bloom Lake.
Labrador Iron Mines (LIM) is the “new kid on the block”, having recently commenced commercial production from a mine site near Schefferville, Quebec, which was previously owned by IOC. LIM has concluded transportation agreements with Tshiuetin Rail Transportation, Quebec North Shore and Labrador Railway (owned by IOC) and Western Labrador Rail Services to have iron ore shipped from the mine site to the port. IOC represents LIM in contract negotiations with foreign buyers, and will ship product on behalf of LIM from its terminal. LIM expects to ship 2 million tonnes of ore in 2012, and intends to increase its capacity to 5 million tonnes as of 2015.
Adding up the volumes expected to be shipped by the three producing iron ore companies, 2012 shipments could total 29.4 million tonnes, representing an increase of 28 per cent over 2011.
In addition to Cliffs, IOC and LIM, a number of other companies have announced plans to mine iron ore in the 1,000 kilometre-long Labrador Trough straddling Quebec and Labrador, and export their production through the port of Sept-Îles. Such companies include Adriana Resources, Alderon Iron Ore Corp., Cap-Ex Ventures, Century Iron Mines, Champion Minerals, and New Millenium Iron Corp. If the projects announced by these companies and the expansion plans announced by IOC were to come on stream as planned, iron ore shipments through the Port of Sept Iles would exceed 200 million tonnes by 2018, a truly astonishing volume.
In addition to the above mining projects, Wuhan Iron and Steel Group of China (WISCO), a company that has direct and indirect interests in several of the above companies, is said to be considering construction of a $1 billion pellet plant at Pointe-Noire. It has also expressed interest in being a partner in the construction of a second railway from Schefferville to Sept-Îles. Furthermore, Russian steelmaker Severstal is reportedly studying construction of a $1 billion iron ore briquette plant at Pointe-Noire. Last, but not least, Mine Arnaud has filed an environmental impact study with the government of Quebec to construct a $500 million plant 15 kilometres from Sept-Îles to extract a million tonnes of apatite annually from eight million tonnes of rock. Apatite is a mineral composed of phosphate that can be concentrated up to 40 per cent and used in the production of fertilizer. Mine Arnaud expects to receive all the necessary approvals by the summer of 2013, after which it will commence construction. Mine Arnaud will embark on this project with partners Investissement Quebec and Yara International ASA of Norway. Following extraction and concentration in Arnaud’s mill, the product will be shipped to Norway for further processing.
It is clear that the Port’s ambitious growth plans are tied to a substantial extent to the fortunes of Canada’s iron ore mining industry. However, for the projects to be implemented, numerous conditions need to fall into place, chief among which is continued strong world demand (and particularly Chinese demand) for iron ore, and prices that will not fall below $100 per tonne. Furthermore, with possibly close to twenty billion dollars required to construct the mines and the necessary infrastructure, investors need to be confident that they will be able to earn a reasonable investment on their risky investments. Moreover, the necessary infrastructure must be put in place to accommodate the growth. While Port of Sept-Îles appears to be ahead of the curve in identifying and accommodating demand, mining towns must be built to accommodate the thousands of new workers, and to provide services to them. Furthermore, with the capacity of IOC’s Quebec North Shore and Labrador Railway limited to 80 million tonnes, and with IOC considering increasing its mining capacity to beyond 50 million tonnes, it may not be long before the railway’s capacity to serve all the newcomers will be exhausted. Last, but not least, the Eastern Canadian iron ore mining industry must keep its eyes focused on cost competitiveness, and the actions of its international competitors. On July 25, Cliffs Natural Resources noted that while costs at all of its North American iron ore operations had increased, those at Wabush and Bloom Lake had increased the most: with cash costs of $107.14 per tonne, and amortization at $16.31 per tonne, Cliffs’ net sales margin per tonne had declined to only $4.94 per tonne during the three months ended June 30. As for international competition, we should note that the combined iron ore output of global giants Rio Tinto, BHP Billiton and Vale exceed 850 million tonnes annually, and that global iron ore production is estimated somewhere in excess of 1.5 billion tonnes annually.