China’s tighter monetary policies and the Eurozone debt crisis sent iron ore spot prices from a record high of US$192 per tonne in February to a low of US$128 in October. The sudden gap between spot and quarterly contracts led to contract renegotiations and quickly propelled the market towards short-term pricing.
But such is the strength of the value of iron that a 33 per cent drop leaves mine operating margins healthy. “We still see that there is margin in the operations that exist today,” says Geordie Mark, research analyst at Haywood Securities. “We think ultimately the support for long-term prices is around the marginal cost of production in the largest iron ore producing nation – China. That’s looking at around US$120 a tonne.”
As existing iron producers proceed with their large-scale expansions, explorers continue adding to the resource pool. “The softening in the price hasn’t changed our plans,” says Konstantine Tsakumis, manager of investor relations at Alderon Iron Ore Corp.
Rising from the trough
Alderon holds property in Canada’s Labrador Trough, a varied region of Labrador and northern Quebec that accounts for 99.8 per cent of Canadian iron ore production. ArcelorMittal, Cliffs Natural Resources and the Iron Ore Company of Canada operate four open pit mines there. Combined, they shipped 33 million tonnes of processed iron ore in 2009.
The southern Fermont area of the Trough contains the sinter-quality hematite sought by 80 per cent of the global fines market. Consolidated Thompson, acquired this year by Cliffs Natural Resources, defined the exploration possibilities of this locale with its two-year-old Bloom Lake project. In 2013, Bloom Lake will ramp up to a yearly 16 million tonnes of iron ore concentrate, with at least a 17-year mine life.
More than one explorer would love to develop the next Bloom Lake. Alderon hopes to contribute another 16 million tonnes from its Kami property, now in the prefeasibility stage, with Indicated Resources of 490 million tonnes grading a typical 30 per cent iron.
Champion Minerals’ flagship property, Fire Lake North, which is adjacent to ArcelorMittal’s Fire Lake Mine, contains a coarse-grained hematite. Its current Measured and Indicated Resources of 400 million tonnes, grading 30.6 per cent Total iron, with 661.2 million tonnes of Inferred Resources grading 27.7 per cent Total iron, will be further defined in a feasibility study due to be completed in the second half of 2012. In November, the company released a Preliminary Economic Assessment for the Fire Lake North property that established a net present value of $4 billion at a discounted cash flow rate of eight per cent.
Further north, near Schefferville, Quebec, massive taconite projects balance lower quality with larger size. Adriana Resources is defining resources at its Lac Otelnuk project, last estimated at 4.89 billion Measured and Indicated tonnes. According to their prefeasibility study, New Millennium Iron Corp.’s LabMag and KéMag deposits contain a combined 5.7 billion tonnes.
New Millennium also holds 100 per cent interest in several direct shipping ore (DSO) deposits near Schefferville that have been revived: its DSO project with Tata Steel is slated to begin production in 2012, close on the heels of Labrador Iron Mines’ 2011 startup. Together, they will add up to 10 million tonnes a year.
The existing infrastructure in the Trough is part of what makes new projects economical, but to meet planned production increases, it will need to improve. Mining companies have discussed potential enhancements to rail, road and power lines with the government of Quebec, whose economic initiative, Plan Nord, is planning to invest a total of $80 billion over 25 years, via private and public investment, in the northern part of the province.
The port of Sept-Îles is undertaking a major expansion to accommodate new shipments. The new multi-user facility at Pointe-Noire will accommodate 50 million tonnes starting in 2014, but could eventually handle twice that. Tsakumis says there will be a joint private/public partnership to fund the project. “The production expansion planned by a number of the companies currently mining in the Trough, including 16 million tonnes a year from our Kami property, have highlighted the need for increased capacity at Pointe-Noire,” he says. With the Quebec government’s port expansion plans currently scheduled for completion in early 2014 and Kami coming on-line in 2015, the timing could not be any better for Alderon.
Quebec’s transport plans pale in comparison to what will be needed by Baffinland Iron Mines. Jointly owned by ArcelorMittal and Nunavut Iron Ore Acquisition, the company is developing a $4 billlion DSO project on Baffin Island. After an environmental assessment comes out in 2012, the speediest scenario would see construction in 2013, and production three or four years later. For now, the Labrador Trough has no domestic rivals, but perhaps in the future that will change.