By Mark Cardwell

Quebec’s minister of economic development says the province is willing to buy crucial transportation infrastructure and even become a financial partner in the Bloom Lake mine if that’s what it takes to entice potential partners to invest in the moribund project. “We’re trying to ensure the survival of the mine,” Jacques Daoust told Bloomberg News in an interview in New York City in early May.

In addition to buying a rail line and seaport facilities, Daoust said his Liberal government would buy 20 per cent of the closed Cliffs Natural Resources Inc. mine in Quebec’s iron ore-rich Labrador Trough. “If the last 20 percent is a problem, I will fix it,” Daoust told Bloomberg. His office did not return calls from Canadian Sailings to discuss the matter in more detail.

The closed mine has been a source of both embarrassment and concern for Quebec since January, when Cleveland-based Cliffs filed for creditor protection for its mining subsidiaries in Eastern Canada. (See the court document here:

After having closed its Bloom Lake mine late in 2014, the company announced in April that its mine, railway and port assets in the region are up for sale. Interested parties must submit non-binding letters of intent by May 19. Qualified parties would then be invited to submit formal bids. 

If a deal can’t be reached, the assets, which include Cliffs’ Bloom Lake and Wabush mining companies, the Arnaud and Wabush Lake railway companies, and port facilities in the Pointe-Noire sector of Sept-Îles, would likely be liquidated on the auction block.

At least one other major player in the region – mining company Alderon – has expressed interest in buying some of Cliffs’ assets. “We are indeed looking at it but there’s been no firm decision,” Alderon CEO Tayfun Eldem told CBC’s Labrador Morning in late April. According to Eldem, Cliffs’ assets could help in the development of its proposed Kami mine project next to Wabush. “We’ll see if and when we will pursue the assets more aggressively,” he said.

For Cliffs, the court-monitored sale of its assets in Eastern Canada is a painful exit from a disastrous mining venture that began in 2010 with its $9.4-billion purchase of Consolidated Thompson Iron Mines. The deal gave Cliffs a majority ownership position in the Bloom Lake property, when iron ore was fetching up to $190 a tonne. The mine produced more than six million tonnes of ore annually until last year, when the company first slowed, then stopped mining operations as the price of iron ore plummeted below $60.

Despite investing $1.8 billion in the mine, Cliffs may still on the hook for up to $700 million in closure costs, mostly due to a 3-year agreement with rival Rio Tinto’s subsidiary Iron Ore Company of Canada for the use of the latter’s rail line linking Bloom Lake and its port facilities. Cliffs contends that the Creditor Protection process that its Canadian subsidiary is presently involved in has effectively ring-fenced Cliffs’ liabilities, resulting in no residual liabilities spilling over to the Cleveland-based parent company. A sale could help the company to either avoid or reduce those steep penalties. Cliffs did not return an email request for information regarding either a possible deal to sell its assets or if and when an auction might be held.

Daoust’s office too did not return calls. It’s likely, however, that the minister’s comments in New York were intended to both woo potential buyers for Cliffs’ Bloom Lake assets, and to put a more positive spin on Quebec’s sputtering iron ore mining projects among New York investors and bankers. “You need at least one strategic partner that is knowledgeable in the mining business,” Daoust told Bloomberg. “You need an operator. Otherwise you won’t be as efficient, as competitive on costs.”

Pierre Gagnon, President and CEO of Sept Iles Port Authority told Canadian Sailings “For us, it means there will soon be a new owner who will get (the Bloom Lake mine) going again. Cliffs literally threw in the towel, so it’s good that we now have an orderly and defined process for the sale of their assets. This is a good opportunity for others, and a step forward for the continuity of mining in the Labrador Trough.” He added that the Port of Sept-Iles and both the federal and provincial governments have worked hard together on the Cliffs file since last year, when the company launched a lawsuit in regards to the Pointe-Noire docking facility. “This is the end of a long saga that we are happy to see finish.”

Although commodity markets are volatile, and can reverse themselves without much notice, influential Wall Street investment banker Goldman Sachs opined on May 11 that recent strength in iron ore prices is only temporary, as oversupply and a lack of strong demand are unlikely to change. Goldman Sachs expects iron ore to average US$ 52/tonne this year, followed by a fall to US$44 in 2016, and $40 in 2017. On the other hand, during the last few days of May iron ore prices rallied by almost ten per cent, despite concerns over oversupply and a rising U.S. dollar.

Separately, BHP Billiton, one of three global mining companies that dominate the iron ore trade, said on May 12 that it expects to reduce its cost of mining western Australian iron ore by 21 per cent to US$16/tonne next year, as compared to its current cost of $20/tonne. Investment banker Deutsche Bank believes Rio Tinto can cut its costs to $13-14/tonne in 2016. Those seeking to get into the iron ore trade had better have deep pockets, and be backed by investors that have nerves of steel.