New Roads to Riches

In a depressed market for commodities, mining companies will have to rely on government funding, P3s and the ambition of local communities to get their projects off the ground.
THE CANADIAN MINING INDUSTRYS success depends on its capacity to move its output to markets efficiently, at competitive prices and via modern infrastructure such as railways, roads and ports. Power generation is also critical. Mines in northern Canada face a special challenge because of the lack of electrical grid capacity.

The slump in world commodity prices from their peaks of 2011 has put a damper on the mining sector in general and on mining infrastructure procurement in particular. There is cautious optimism regarding mining plays in 2017, but nothing like the exuberance that would be triggered by a sustained rally in precious and base metals.

“I think prices need to go up a little bit more and hold for a little bit longer,” says Erik Goldsilver, a partner at Borden Ladner Gervais LLP in Toronto. “The increase in prices we’ve seen over the past six to 12 months is positive, but there’s still some room to grow.”

“Since the downturn,” says Crae Garrett, a partner at Norton Rose Fulbright Canada LLP in Calgary, “many mining companies have tightened their belts and haven’t done any development. The public sector has been driving whatever infrastructure development has taken place for the mining sector — as the benefits outlast the projects.”

As for private investment in mining transport, “a lot of the in-production mining activity already has its infrastructure,” says Garrett, “so you’re looking way more at exploration plays, and they always get hit more in a downturn.”

According to the Mining Association of Canada, Canada no longer attracts the single largest share of total global mineral exploration spending, a ranking it lost to Australia in 2015. Says Goldsilver: “There are probably many reasons — government regulation, the Canadian dollar, more mature projects here in Canada.”

BRITISH COLUMBIA

In BC’s Golden Triangle, some projects are moving forward. Imperial Metals Corp.’s Red Chris copper/gold/silver mine is in production mode. Pretium Resources Inc.’s Brucejack gold project is under construction, and the Brule coal mine in Tumbler Ridge has gone back into production after being acquired by Conuma Coal Resources.

The enhancement of electrical transmission in northwestern BC has facilitated these projects. The recently completed $700-million high-voltage transmission line runs 335 kilometres from Terrace to Bob Quinn Lake, and north to the Red Chris mine.

Other recent upgrades include the paving of the Stewart-Cassiar highway north from Smithers (Hwy 37); the opening of ocean port facilities for export of concentrate in Stewart; and the completion of a three-dam 277 MW hydroelectric facility located 70 kilometres northwest of Stewart.

PRAIRIES

Calgary-based Ironstone Resources Ltd. anticipates a start-up in 2021 of its Clear Hills project in northwestern Alberta to extract iron ore and vanadium. Part of the infrastructure will be a rail line to connect with CN rail, likely around Dixonville. Improvements will be made to the forestry road, which goes into the mine site.

In Bethune, Saskatchewan, German-based K+S AG completed construction of its $4.6-billion potash mine in May 2017 — the province’s first new potash mine in 40 years. It is expected to reach production capacity of two million tonnes of potash by the end of 2017. To move the output, CP Rail constructed 30 kilometres of new railway from the mine, which is located near Findlater, Saskatchewan, to the existing Kalium Spur near Belle Plaine.

ONTARIO

Ten years after massive deposits of chromite, nickel and copper were discovered in Ontario’s James Bay lowlands, the Ring of Fire development is stalled due to low commodity prices, the absence of agreement with Aboriginal communities in the area and a lack of transportation infrastructure.

“For projects like that, which require not only mining development but all of the infrastructure, that takes a much stronger rally in commodity prices than to develop something that is in an existing infrastructure area,” says Melanie Shishler, a partner at Davies Ward Phillips & Vineberg LLP. “Ultimately, [decisions on infrastructure] will be political as well as financial. You have to work through the political channel to make sure you get the permits you need to go one way or another.”

Toronto-based Noront Resources Ltd., the largest company that remains in the Ring of Fire, favours an all-weather, east-west road to be built over the muskeg to the mine site. Although Ontario has committed $1 billion to fund transportation infrastructure in the region, little work has been done to prepare for a road. No route has been selected, and no agreements put in place on who would fund it or who would own or maintain it.

Meanwhile, Toronto-based KWG Resources Inc. has proposed building a rail line to the mineral deposits using engineering and long-term financing from China. If approved, the $4-billion rail line would mark the first time that a Chinese rail company has played a major role in rail construction in Canada. (China is the world’s largest importer of chromium, used in stainless steel.)

The proposed north-south rail line, about 340 kilometres, would connect the Ring of Fire to an existing CN Rail line near Nakina, Ontario. Chinese engineers from a subsidiary of the state-owned enterprise China Railway Construction Corp. visited the region in April of last year and prepared a feasibility study for Chinese financial institutions.

Noront has criticized KWG’s proposal for a north-south rail line, arguing that an east-west road is more affordable and would allow the region to be developed in stages, while also connecting more First Nations communities to the south.

“From the company’s perspective, they want someone to build the roads or the railway for them,” says Goldsilver. “At the end of the day, it’s probably going to have to be some sort of public-private partnership, because the majority of that road is going to be used by the mining companies.”

QUÉBEC

Québec’s Plan Nord, a 25-year $80-billion plan for development of the mining, energy and forestry sectors in northern Québec, was first announced in 2011. Québec Premier Philippe Couillard presented a scaled-down version in 2015.

In the more modest version, the province is to invest about $1.3 billion in infrastructure and other projects over five years in hopes of attracting $22 billion in private-sector investment north of the 49th parallel. “We’re two and a half years in, and a lot of studies are being conducted,” says Charles Kazaz, a partner at Blake, Cassels & Graydon LLP in Montréal. “I’m not sure whether they’ll be able to hit that number by 2020.”

Québec’s far north holds undeveloped deposits of iron ore, copper, nickel, zinc, uranium, cobalt, gold and diamonds. The Labrador Trough, a geological belt straddling the Québec-Newfoundland-Labrador border, is one of the world’s most promising regions for high-quality iron ore.

But the low price of iron ore, one of the most heavily mined commodities in Québec, makes new production uneconomic now. Cliffs Natural Resources Inc. shut down its iron-ore mine at Lake Bloom in 2015, and other companies in the area have retreated.

The first project to come online under Plan Nord is Stornoway Diamond Corp.’s diamond mine — the province’s first — at Renard in north-central Québec, 350 kilometres north of Chibougamau. A 240-kilometre extension of Route 167 made the project possible, but cost overruns that pushed the road’s cost to $300 million prompted the province to renegotiate its share of the financing.

The road extension has allowed Stornoway to drive in crews and equipment, as well as liquefied natural gas to power the mine operations — limiting the need for visits via float plane or helicopter. The extension is expected to open other mining projects, and allows for exploration work that would otherwise depend on costly helicopter flights. Stornoway previously built a small airport near the mine. The Québec Government’s Société du Plan Nord acquired Cliffs Natural Resources’ terminal assets at Pointe-Noire, in the Port of Sept-Îles last year, with the intention of developing a multi-user terminal handling facility.

A $220-million expansion is underway at Pointe-Noire to construct a deep-water dock with an annual capacity of 50 million tonnes per year. This expansion will allow larger shipping vessels to dock at the Port. This will be the only dock on the east coast of North America that the Chinamax cargo ship will be able to use, due to its size.

But a proposed 800-kilometre, $5-billion rail line from Schefferville south to Sept-Îles was shelved in 2013, when CN Rail and Caisse de dépôt et placement du Québec abandoned their plans due to delayed mining projects. “The resources are there, they’ve been explored,” says Kazaz, “It’s a matter of putting in the infrastructure to get them developed. The question then becomes, who pays for that?

“Up until now,” he says, “most of the development has been in areas where there’s existing infrastructure and mining development has been able to benefit from that. If Québec really wants to develop this new territory, the infrastructure has to go in and [it’s a matter of] who pays for it, and whether that makes the mining project financially viable or not.”

While the federal government intends to launch its $35-billion Canada Infrastructure Bank by the end of the year, Garrett suspects the projects it backs will be driven by the needs of local authorities. He says: “You can easily foresee scenarios where local communities will work with a prospective mine developer to put in place infrastructure that will help develop a mine but also benefit local communities.”
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