The wheels have started falling off the cart, or in this case, the railway. In a letter to Nunavut authorities, operator Baffinland Iron Mines Corp. stated that a planned railway for the project will be deferred, and the iron ore will instead be trucked to an existing small port instead of a building a new one.
A short 2 years ago Baffinland had planned a $6 billion project to develop the rich Mary River iron ore deposit on Baffin Island. Integral to the plan was a $1.2 B railway from Milne Port to Steensby Port, right across Baffin Island, with the mine smack dab in the middle. The line would be 150 km. long. The whole project would take 3-4 years to build, employing almost 1,000 people when completed.
In the past two years, the $6 B project became a $ 4 B project. ArcelorMittal has been struggling with debt and financial deterioration in Europe. In the latest quarter the company lost $700 M on revenues of about $20 B. It carries $26.6 B in LT debt. Both steel production and prices are down by about 25% from 2008. ArcelorMittal is headquartered in Luxembourg, but really operates out of London. Unfortunately, the company is tied heavily into the weak European and Americas economies, rather than the robust Asian ones.
ArcelorMittal has sold 20% of its 70% share of the Baffinland project to Asian investors.
Mary River is the latest casualty of slowing commodities demand and soaring operating costs in the resources sector that have already caused companies to delay multibillion-dollar mining projects in recent months. Baffinland Iron Mines Corp. said it is replacing a mine plan to produce 18 million tonnes a year of iron ore with one that will produce just 3.5 million tonnes. A planned railway for the project will be deferred, and the iron ore will instead be trucked to an existing small port at Milne Bay instead of a building a new one. The railway bit the dust (for now).
Mary River received federal government approval in December and construction was to begin as early as July. Production was slated for 2017. It’s not clear when production could start under the revamped mine strategy.
A $6 B project being scaled back to $750 M is obviously a radical downsizing. ArcelorMittal is struggling with its debtload and the Canadian project in the far north is feeling the repercussions. It makes one wonder if this project will survive the year.