“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 email@example.com.