Feds to modernize Port of Sept-Iles

The Canadian government’s decision to spend up to $55 million on the construction of a deep-water, multi-user dock at the Port of Sept-Iles that complies with new loading standards in the iron ore industry is welcome news to iron ore companies in the region. The new deep-water dock will be equipped with two ship loaders and the same number of conveyor lines and is forecast to be completed by the end of March 2014.

Given that the port is the sole portal to overseas markets for iron ore mined in Labrador, the investment has huge implications for the success of companies developing projects in that region. Given that the port is the sole portal to overseas markets for iron ore mined in Labrador, the investment has huge implications for companies developing projects in that region including Alderon Iron Ore (ADV-T, ALDFF-O), Champion Minerals (CHM-T), Labrador Iron Mines (LIM-T), and New Millennium Iron Ore (NWM-T).

Alderon Iron Ore believes the new facilities will be critical to the company’s development plans as it moves its Kami project into commercial production in 2015. Alderon expects to start shipping 8 million tonnes of iron ore a year from the port in 2015 and jack that up to 16 million tonnes a year starting from 2020 but says the port facilities are simply inadequate to meet even its initial targets.

Alderon Iron Ore’s Executive Chairman, Mark Morabito, notes that Sept-Iles was developed for another era, when iron ore was shipped through the Great Lakes to the northwestern U.S. and argues that the reinvigoration of the iron ore mining camp in Labrador West won’t be servicing North American markets but rather the China market. “If China is your main market then you’d better have the capacity to get it there,” he says, adding that Consolidated Thompson, now part of Cliffs Natural Resources (CLF-N), has had to use a self-unloading Laker vessel to take the ore and ferry it out to a waiting ship because the berth at Sept-Ile isn’t deep enough and the facilities are insufficient.

“A self-unloading laker with a capacity of about 30,000 tonnes runs back and forth from the Port of Sept-Ile to a larger vessel in the Gulf of St. Lawrence, which is arguably $6-$8 per tonne in additional costs,” he says of Cliff’s transshipment methods. “It’s a big colossal waste of money for Cliffs and just an example of how inadequate the current capacity is.”

Morabito calculates that on top of the $55 million provided by the federal government, as much as $100 million from project debt financing from infrastructure funds, and the remainder split between mining companies active in the region such as Champion Minerals, Labrador Iron Mines and New Millennium. “Alderon is looking at a contribution in the neighborhood of $10 million or $20 million. That would be within our expectations and that appears to be the way that it will shape up.”

He also believes that the March 2014 date is realistic for completing the project because the engineering was done two years ago and the design for the expansion project requires only a minimal amount of dredging.

When asked why the federal government waited until now to move ahead with the project, Morabito said it needed to be sure that the outlook for iron ore was robust enough to warrant spending tax-payers money on the project. “Commodity cycles are notoriously boom and bust and nobody wants to invest millions of dollars in infrastructure that isn’t going to be utilized,” he explains.

Morabito argues that the consensus outlook for iron ore is of “multi-decades of demand” arising from emerging markets such as China, India and Brazil. “The outlook is very strong and it’s generally accepted to be strong and the government is convinced that it’s not going to go bust anytime soon,” he continues. “The investment they’re going to make will produce a dividend.”

The Port of Sept-Iles, 650 km down river from Quebec City on the north shore of the Gulf of St. Lawrence on the Atlantic Ocean, is a large natural harbor that extends to depths of 80 metres and is open year-round. Sept-Iles is characterized by its deep waters and 10-km-wide semi-circular bay.

Last year it handled 25.9 million tonnes, the highest volume of activity in thirty years. Government estimates put the port’s annual economic impact at nearly $1 billion.