The Canadian Press reported that Canada's mining industry remains confident about the Labrador Trough's long term prospects even though waning iron ore prices could prompt some companies to delay their massive development projects in Quebec's northern region.
The spot price of iron ore set a 2 and a half year low falling to USD 111.90 per tonne this week, the weakest since December 2009 amid weakened demand in China. The price is down nearly 20% in 2012.
That's prompted companies such as Labrador Iron Mines to review their capital spending plans for development programs in Quebec's key producing region.
Mr Pierre Gratton of the Mining Association of Canada said that "You'll see some of the major companies taking a pause perhaps, recalibrating maybe, but everybody is still pretty bullish about the long term."
Prices may have fallen from last year's high of USD 170, but they are still three to four times above their historical average.
Urbanization in China has boosted demand for the key ingredient in steel making. Growth in the world's second largest economy may have slowed, but it's still forecasted to be about 7.5% per year.
That creates a strong fundamental support for the mining industry, said Gratton.
Urbanized communities use 10 to 15 times more steel intensity than rural settings. More than six billion people, the world's current population, are expected to live in cities by 2050.
Adriana Resources' Lac Otelnuk project has Canada's largest known iron ore deposit and could potentially be one of the largest in the world, with an annual output of 50 million tonnes.
Mr Allen Palmiere CEO of Adriana Resources said that commodity prices and financing are key factors that drive timing decisions, but its project is based on a USD 75 spot price for iron. He added that "At that level, the economics appear to be robust so we still have a reasonably high degree of comfort even at today's prices."
But that may not be the case for all projects in the Labrador Trough, a 1,000 kilometer belt stretching from Ungava Bay in northern Quebec through Labrador.
Mr Palmiere said that projects are typically delayed if companies have trouble obtaining financing if commodity prices and equity markets are weak. In addition to pricing pressures, financial problems in Europe are creating a big overhang. He added that "If we see any kind of strengthening in the near term, I wouldn't anticipate there being a big impact, but if there's a sustained reduction in commodity prices, unquestionably you'll see deferment of projects."
Ms Jackie Przybylowski of Desjardins Capital Markets said projects most at risk are ones earlier in their development that haven't locked up agreements with steel producers, financing or feasibility studies. She said that "Our view is that all the projects in our coverage universe are economic still and they would not be at risk."
The analyst covers Adriana Resources, Alderon Iron Ore Corporation, Champion Minerals, Labrador Iron Ore Royalty Corporation, Labrador Iron Mines Holdings and New Millennium Iron Corporation.
She expects that the addition of new supply from Canada and leading markets in Australia and Brazil could prompt ore prices to fall further in the longer term to USD 92 per tonne.
But Mr Jeff Hussey of Champion Minerals hopes such forecasts are wrong. He points to some recent suggestions, including by Brazil's mining giant Vale, about a price recovery in the third or fourth quarter and says most development projects are based on prices using a three year moving average.
The Labrador Trough region has higher operating costs than Australia or Brazil in part because of the distance to ship ore to China. It's also a remote region that requires the building of costly rail, port and electricity infrastructure.
Any delays in production could impact infrastructure projects such as a planned USD 5 billion Canadian National Railway line being studied with support from the Caisse de depot and some mining companies.
Adriana could be among the biggest beneficiaries of the new line, but the company isn't one of those supporting the feasibility study. Palmiere said it is reviewing its other options but expects the railway project will proceed.
Source - The Canadian Press
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