Things can change — and they do

Russell
Russell Wangersky
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“In the current global financial environment the large development capital cost for the Mary River Project is difficult to finance. This same effect is being felt by many major projects around the world. Additionally, the risks associated with large capital developments are magnified during tight financial markets.”

That’s from a Jan. 10 letter by Erik Madsen, the vice-president of sustainable development, health, safety and environment, with Baffinland Iron Mines Corp.

You may remember hearing about Baffinland: the major iron ore project was a stock market darling in 2011 as share prices rose quickly on the strength of the company’s iron ore reserves.

There were bidding wars and dramatic share-price increases until the company was finally bought out and the project was fast-tracked.

It was supposed to move into full-scale production in 2017. It was also supposed to be a huge economic driver for the region.

Not so much now, at least, not for the foreseeable future.

Madsen was writing to territorial regulators in Nunavut to tell them that Baffinland was dramatically scaling back its plans for a major iron ore mine, taking things like port facilities, year-round shipping and a railroad off the table for now.

The company’s $4-billion development plan is being scaled back to something close to $740 million, with iron ore production dropping back from 18 million tonnes a year to 3.5 million tonnes.

It’s an interesting development in the iron ore business, an industry that seems dogged by speculative peaks and valleys. Iron ore stock promoters have wrung good news out of almost anything in a period that has seen plunging ore prices on weak demand from a slowing Chinese marketplace. AcelorMittal was briefly responsible for a surge in stock prices in junior iron ore plays after it sold 15 per cent of its Canadian operations to try and reduce debt and prop up its own credit rating, which was dropped to junk bond status in August.

It’s interesting to look at those junior miners, many of which saw their own share prices rise on AcelorMittal’s selloff in an otherwise dismal year.

Here’s the take on their performance from a Jan. 3 Bloomberg.com news story: “Champion, which rose 17 per cent in Toronto yesterday, had slumped 54 per cent in 2012. Alderon, which gained 8 per cent, dropped 34 per cent last year. Labrador Iron, up 32 per cent yesterday, plunged 78 per cent in 2012.”

Why should anyone care, unless they are a shareholder?

Well, perhaps because iron ore mining is the third pillar of the Muskrat Falls project.

Ratepayers in this province will pay the whole cost from the province in their electric bills, but the provincial government has maintained that the project also has the opportunity for power export (at this point, at well below the cost of production of the electricity) and has maintained that the power is crucial for a whole slew

of iron ore mining projects in Labrador, projects that need large amounts of power, and not incidentally, need that power at special, government-sponsored rates that will be put in place by the provincial cabinet.

In that way, we’re all about to be investors in the iron ore mining industry, something that could be immensely profitable if iron ore prices rise from their current dip, and if the variety of self-promoting ventures involved actually go ahead.

In Nunavut, Baffinland’s suddenly reduced business plan was described in the media as “a bolt from the blue.”

The project had only passed through the regulatory approval process.

It received a project certificate on Dec. 28, 2012, and two weeks later was asking the Nunavut Impact Review Board for permission to scale everything back.

Which is what mining companies do: they are responsible to their shareholders, measuring such things as their expectations for future iron ore prices, their development, production and borrowing costs, and whatever concessions — from cheap electricity to royalty packages — they can wring from competing governments. They move ahead — or not — on those pragmatic grounds.

The thing to keep in mind? Just because we’ve set the table, doesn’t mean they’re coming to dinner.

Russell Wangersky is The Telegram’s editorial page editor. He can be reached by email at rwanger@thetelegram.com.

Organizations: Baffinland Iron Mines, Nunavut Impact Review Board

Geographic location: Mary River, Nunavut, Toronto Labrador

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Recent comments

  • Petertwo
    January 16, 2013 - 07:37

    I see the Egyptians are still building pyramids. In some ways civilization has come a long way, in others it does not seem to have moved at all from the earliest recorded history. Businessman may be surprised when all the taxpaying jobs are moved offshore and there is no,or very little, pay to pay the taxes. Been there done that already, Dickens, Carlyle- the Nabobs never change- et all.

  • crista
    January 15, 2013 - 15:34

    to; A bussinessman,NOT ONLY JUST THE GOVERNMENT!!!! YOU SEEM TO KNOW WHAT YOU ARE TALKING ABOUT???? AS A BUSSINESS AND AS A VOTER YOU SEEM TO KNOW ABOUT THE GOVERNMENT, AND YOU, HAVE TO ALSO MAKE A DECISION AND THAT IS ARE YOU ALWAYS GOING TO BE IN NEWFOUNDLAND???? AND IF SO YOU MUST KNOW SOME THING AND NOT TELLING ANY BODY, AND PEOPLE WONDER WHAT IS WRONG WITH THE WORLD AND SOCIETY AND YOU ARE NOT THE ONLY ONE THAT PUTS THEIR INTEREST FIRST???? NOT BEING SARCASTIC,REMEMBER THE SONG LOUIE ARMSTRONG SANG. WHAT A WONDERFULL WORLD????

    • a business man
      January 16, 2013 - 08:20

      Crista: regarding MF, I honestly know very little about the project or the potential consequences. I will not do any research because I know that I expect to benefit from MF, and I understand that I may be wrong. I am willing to take the chance. That is my right. You say I have to make decision about staying in Newfoundland......I am not sure why I have to make that decision. I can do what I want when I want. Anyway, I always put my interests first. For example, with MF: I have more business interests in Nova Scotia than I do in newfoundland. One reason why I blindly (and willing) support MF because my business interests in NS will benefit. SO I am using my vote in newfoundland to benefit my Nova Scotian business interests, and I accept that newfoundland may face hardships. That is my right as a citizen and voter. Part of the reason why I am still in newfoundland is cast my ballot and make donations to pro-MF politicians. At the end of the day, I don't really vote for politicians, political parties, or idea. I am voting for me and my interests

  • Winston Adams
    January 15, 2013 - 11:14

    Critics predicted that if MF goes ahead, that conservation measures will stall. Efficiency measures can provide significant offset for residential customers to increased rates. Other jurisdictions are using 4 percent or more of revenue to fund this. We are at less than 1 percent. There will be a small increase this year and next, but never reaching 1 percent. Then for future years it is FLAT. Just as critics predicted. This is the path to prop up demand for MF at the expense of efficiency savings for the consumer. Why isn't the media probing the Rate application?

  • Cyril Rogers
    January 15, 2013 - 10:44

    Some things that will not change include the heads stuck in the past like those that currently occupy Confederation Hill. They have no vision and can only see the past...a recipe for disaster in this rapidly changing economic environment. There is need to put the brakes on with MF but the problem, as I see it, is this. They are in a huge hole but cannot admit that they are digging themselves deeper all the time. Sadly, we are the ones who will fall into the fiscal crater they have created.

  • Maurice E. Adams
    January 15, 2013 - 07:45

    And why should low and middle income island ratepayers/taxpayers pay $700 million a year for 50 years on the basis of the "speculative" interests of the Labrador corporate mining sector? ........You know, it used to be that business interests were supported by government when the planned corporate activity helped to pay for the peoples' needs (roads, schools, hospitals, etc., etc.), now, this Muskrat Falls project requires/forces low and middle income island ratepayers to pay (for 50 years) to produce power for the mining industry ---- and with the world economy the way it is, even the mining compamies may not need the power. ---------- It is time to call a halt to Muskrat Madness and to conduct a detailed review.

    • a business man
      January 15, 2013 - 11:27

      Maurice, low and middle income island ratepayers/taxpayers should pay $700 million a year for 50 years on the basis of the "speculative" interests of the Labrador corporate mining sector because the majority of Newfoundlanders say so. I have nothing to do with the mining sector, but I expect to benefit from MF in indirect ways. As such, it is my wish as a high income ratepayer for low income and middle income ratepayers to pay the cost. If the cost is passed to me, I will move my companies to spite the government and those who oppose MF. I will not leave newfoundland, but rather, I will stay here and enjoy my home while making money using an offshore workforce. I will not create jobs in any jurisdiction in which my interests are not put first. I will not create/keep jobs in an area where the government is not aligned with my interests. I expressed my wish with my vote, and I got the government that I wanted. I understand that you disagree, but please understand that the majority of Newfoundlanders are okay with the low income earners footing the bill. Someone has to and no one want to. Thus, it is up to the majority (and their government) to make the decision.