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Quebec bets on rail

June 08, 2014

The new Liberal government of Quebec is ponying up $20M to help fund a feasibility study for expanding/improving the rail service into northern Quebec.

The Quebec government committed in Wednesday’s budget up to $20 million towards a feasibility study on the construction of a railway line connecting the iron ore deposits with the Port of Sept-Iles. The study will estimate costs and determine the best railway option, including increasing capacity on existing lines and the building a new one. CN has stated that it is interested in cooperating with the study. Just two years ago CN had considered a $5B rail project in the region, but shelved the project.

The Labrador Trough is among the world’s largest iron ore deposits, with annual production of some 50 million tonnes. However, in terms of world production, Canada is a minor bit player ranking 9th in the world.

There are a plethora of iron ore projects in the Labrador Trench that could easily be developed. Better rail infrastructure obviously would make the potential investments more attractive. To take but one example, Adriana Resources Inc. has 20B tonnes of proven ore at its Lac Otelnuk Iron Project, located 170 kilometers north of the town of Schefferville, Quebec. The potential project could cost $12B. There are numerous other projects in the Labrador Trench that could be developed.

The Quebec North Shore and Labrador Railway (QNSX) runs from Labrador City, Nfld to tide water at Sept-Isles. The QNS&L is the only remaining freight railway in Canada to have used Single Person Train Operation. The railway is more than 60 years old. QNSX is owned by Rail Enterprises Incorporated, an agent and unit of Iron Ore Company of Canada (IOC) (majority owned by Rio Tinto) and is no longer a common carrier. QNSX maintained subsidized passenger and freight service for local First Nations communities along this portion of its system, known as the Menihek Subdivision, until December 1, 2005, when it sold the Emeril Junction, Labrador-Schefferville, Quebec, rail line to Tshiuetin Rail Transportation for the sum of 1$ CAD. The total distance from Schefferville, Quebec to Sept-Îles, is 578 kms.

The headwinds facing development of more iron ore mines in the Labrador Trench can be summarized in two words - China overcapacity. China, as workshop for the world, consumes almost 60% of the sea-borne iron ore. Chinese steel making capacity utilization has fallen from 95% in 2001 to 75% last year, and will eventually plunge toward 60% and a half billion tones of excess capacity. Iron ore with 62 percent content delivered to the port of Tianjin, China were at $94.60 a dry ton last week, according to The Steel Index Ltd. Prices have slumped 30 percent this year, reaching $91.80 on May 30, the lowest since Sept. 7, 2012. The world’s largest iron ore producers are not cutting production, rather the marginal iron ore mines are being forced to close. Weakening prices do not make it easier for mining companies to invest.

 

 

Commentary

Quebec has a strategic interest in seeing iron ore mines developed. It possesses tremendous amounts of iron ore in the Labrador trench. Governments across North America has invested nothing in railways to the north for a half century. Kudos to Quebec for this effort. The Quebec government is taking a worthy gamble on this study in hopes of kick-starting iron ore projects. Unfortunately, the mega-forces of the world economy are blowing hard against new iron ore production investments—prices have fallen off dramatically in the past two years.

Sources

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Source: Labrador Iron Mines.ca