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After years of "beavering away" and spending $170-million, Baffinland Iron Mines Corp. said Tuesday it will cost $4.1-billion to develop its Mary River iron ore mine in Nunavut.

Gordon McCreary, chief executive officer of the Toronto-based company, told a conference call that a feasibility study on the project shows the proposed open-pit mine would have a 20-year mine life, based on proven and probable reserves of about 365 million tonnes of iron ore.

The $4.1-billion capital cost would include a contingency of $438-million, he said, adding that rising iron prices and demand for steel have improved financing possibilities.

The mine, designed to produce ore for European steel mills, is 160 kilometres south of Pond Inlet on Baffin Island in the Arctic Ocean.

"We have been beavering away for a long, long time - having reactivated exploration on the project in 2004," Mr. McCreary said.

After spending about $170-million in exploration costs to this stage, "here we are ... on the verge of significant de-risking of our project," he said.

In the second quarter of 2008, "further risk reduction is expected with the completion of a scoping study demonstrating the scalability of the project by expanding output to 30 million tonnes per year based on the enormous resources delineated ... ."

"During the third quarter, further technical de-risking of the project is anticipated with the delivery of our bulk sample of 250,000 tonnes of lump and fine iron ore to certain European steel mills," he said.

Baffinland's announcement Tuesday came a day after Brazilian mining giant Companhia Vale do Rio Doce announced a deal that will raise iron ore prices 65 per cent for six major Asian clients - a deal that could set the tone for global pricing.

Mr. McCreary welcomed the pricing deal. "That is well above expectations for the iron ore price," he said.

It was the first new price agreement between a major ore producer and big steel makers, a move that typically sets the benchmark price for the industry.

The demand for iron ore has been soaring in the past couple of years, due in large part to China's booming economy and shortage of the metal.

"Their growth in consumption of seaborne iron ore is about 50 million metric tons per year," Mr. McCreary said.

"If you think about our project as being 18 million tonnes per year in the initial phase, that's like something in the order of three of our projects per year that are needed just to service China," he said.

"It just gives you a sense of the growth that is going on and how the big three iron ore producers, Vale, BHP Billiton and Rio Tinto, are attempting to ramp up their production."

He added: "All the low-hanging fruit is gone. It's become very challenging to ramp up their production to meet this enormous growth out of China."

Baffinland, he said, also has as a backdrop BHP Billiton Ltd.'s takeover attempt of Rio Tinto PLC, the world's third-largest iron ore producer wanting to take over the second-largest.

"That has perhaps profound implications relative to our market," he said.

Tony Robson, financial analyst with BMO Capital Markets Canada, says all the players in the iron ore industry, including Baffinland and the major three players, have expansion plans in place.

"Rio Tinto is going to 620 million tonnes, Vale to 450 million tonnes and Billiton to 300 million tonnes, with expansion beyond that."

Baffinland, he said, is in a group of producers that he called "want-to-bes/going-to-bes."

In its favour is a very large tonnage ore body that should go to one to two billion tonnes at a very high grade, 66 per cent iron ore, Mr. Robson said.

The issue for Baffinland "is clearly location, and the $4.1-billion capital cost was a big increase over the previously published $1.4-billion. On the other hand, they have increased project size," he said.

By 2012, based on iron ore industry figures, BMO Capital Markets expects a global seaborne iron ore market of about 1.11 billion tonnes If you take 2012 as the base, then Baffinland "is going to have about a 1.5 per cent market share" given its expansion plans.

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