Labrador West’s great rust-coloured hope took another step forward Tuesday, with the signing of a power purchase agreement (PPA) for the project — the proposed Kami iron ore mine.
The news comes on the heels of a decision by the provincial government, to order Newfoundland and Labrador Hydro to move ahead with construction of a power line from Churchill Falls to Labrador West, to feed the proposed mining operation.
The PPA firms up a company commitment to buying Hydro power off the new line.
“The power purchase agreement was a key infrastructure requirement and is critical in securing the previously announced debt financing and we are very pleased to have finalized it,” said Tayfun Eldem, Alderon’s president and CEO, in a statement.
To assure its commitment to the Hydro power if the line is built, Alderon began in 2011 by providing $4.4 million to advance Hydro’s engineering work.
The company has now agreed to put forward $65 million — to be returned by Hydro once power is flowing to the mine, or forfeit to the utility if the mine is not established as planned.
Liberty Metals and Mining Holdings has provided $22 million of the company’s $65-million security to start. “As Hydro makes commitments on the line (construction) it will ensure that Alderon posts additional security up to the $65 million,” noted a spokeswoman for Hydro in swift response to questions.
Alderon is not expected to be the only user of power from the new line, though other potential industrial customers have yet to be identified.
The overall cost of the power line’s construction is estimated at $300 million, excluding any interest and cost escalation.
And Alderon’s payment as security will not chip away at that total cost to Hydro.
How the utility pays for the line will be determined by the public utilities board. Some of the cost will be covered by the rates charged to Alderon for the Kami mine’s power, but those rates are limited to within the province’s new Labrador industrial power rate policy, introduced in December 2012 through a collection of legislative amendments.
It is unclear exactly how the PUB may ultimately deal with recovery of the line’s total construction cost.
The regulator does not, at this point, have any details before it on the line.
Construction of the new power line is expected to start this spring.