November 2014

Productivity the name of the game at MEMO

Canadian iron ore producers see potential for a bright future amidst dark present

By Antoine Dion-Ortega and Pierrick Blin

With the iron ore fines price flirting with the $80-a-tonne mark, the need to increase productivity and reduce costs is a major issue in the sector. At the opening plenary session of this year’s Maintenance, Engineering and Reliability/Mine Operators (MEMO) conference in early September, each of the five invited speakers discussed the urgency to innovate and adapt to the new global context. “We need to prepare for a new downward cycle and potentially a new reality,” said Pierre Lapointe, general manager of operational excellence mines at ArcelorMittal. “We can either wait for prices to go up again or adapt now.”

MEMO 2014 was held in Sept-Îles, Quebec, a major port city for projects farther to the north in the iron-rich Labrador Trough, by CIM’s Quebec North-East Branch in conjunction with the Institute’s Surface Mining, Underground Mining, and Maintenance and Engineering Societies. The annual event welcomed 360 attendees from the service and supply sector as well as maintenance engineers and mine operators.

The city of Sept-Îles is currently receiving conflicting signals from the industry, as recent bad news is being offset by positive prospects for the future. Last winter, Cliffs idled operations both at its Wabush mine and its pellet plant in Pointe-Noire, sending a shockwave across the whole region. At the same time though, ArcelorMittal and Iron Ore Company of Canada (IOC) have stayed the course with their respective expansion targets, while Alderon, Tata Steel and New Millennium Iron are moving forward to develop their own projects. Finally, the port of Sept-Îles is about to complete a brand new multi-user dock that will more than double its current shipping capacity of 45 million tonnes per year (Mt/a). The dock should be fully commissioned by the end of 2014 and will start shipping iron ore in early 2015.

Global competition has clearly intensified this year, as many ambitious projects set up during the 2010–11 iron ore rush are now entering production. “There have been massive expansions in Australia and Brazil, which are all coming into production now, not at the best of times,” said Terry Bowles, president and CEO of the St. Lawrence Seaway Management Corporation and past-president of CIM. “There are surpluses in iron ore, somewhere between 72 Mt this year to maybe 200 Mt in 2015.” In the Labrador Trough alone, about 25 Mt will be added to the current 42 when Alderon Iron Ore’s Kami project enters production, at the end of 2016 at the very earliest.

In a context where abundant surpluses are dragging prices down, productivity is key. Yet it is lagging behind in the Labrador Trough, according to Bowles, who was president and CEO of IOC until 2010. “Production costs are still high,” he said. “In this region, [iron] grades go from 39 to 28 per cent at the lower end, versus 63 per cent in Brazil. We start with a tougher draw on our hands.” Canadian iron ore is at the top end of the production cost curve, he said, while competitors in Australia and Brazil are at the bottom. “If we include cash costs, sustaining costs and transportation costs, we are in a range of $90 to $120 per tonne. So when prices are below $100, it is tough to make money.”

Louis Cyrenne, vice-president for Sept-Îles operations at IOC, is confident his company will successfully overcome these global challenges. In 2010, IOC launched its concentrate expansion program (CEP), a three-phase investment program aimed at bringing production from 17 to 22 Mt/a. Four years later, nearly $1 billion has already been invested for CEP1 and CEP2 – the first and second phases of the program; the third phase is on the way as the company’s Wabush 3 project is scheduled to enter production in January 2017. As for ArcelorMittal, it hopes to meet its 2014 objective of 24 Mt/a, after two years of massive investments totalling $1.6 billion.

New paths should be explored in the quest to reduce costs further, according to Bowles. He mentioned Rio Tinto’s Pilbara mines in Western Australia as an example of what automation can accomplish. Last June Rio Tinto announced that its Mine of the Future programme reached a major milestone when its fleet of autonomous haul trucks moved its 200th million tonne of material. A natural gas supply, either from a pipeline or from liquefied natural gas imports, would help replace expensive fuel costs. Capital efficiency also needs to be tackled. “We have seen record impairments in the last couple years,” he said. “Meanwhile in Australia, they are delivering mining expansions for $120 to $130 per tonne of capacity. You can’t be purchasing facilities for $800 a tonne; you won’t survive.”

Finally, Bowles prompted companies to innovate by improving maintenance and reliability practices. “Equipment productivity in Canada has gone down by 12 per cent since 2000,” he said. “You have to improve the efficiency of your equipment, because productivity is the name of the game.”

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