Multi-billion dollar Baffinland project an awesome shipping challenge

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January 23, 2014

Canadian Transportation & Logistics 
-Leo Ryan

Of all the current resource projects in Canada's Arctic, none comes close to matching the potential shipping dimension of a multi-billion dollar project on Baffin Island. The awesome undertaking, in fact, traces its origins back about half a century ago when two young geologists flying over Baffin Island saw their navigation compass suddenly starting to spin wildly. Beneath them lay what turned out to be the largest, high-grade undeveloped iron ore deposits in the world.

A decade or so later, a mining engineer graduate of Queen's University embarked on a study of the deposits, focusing especially on the complex challenges of transporting iron ore from the deep Arctic to markets in Europe and elsewhere. Today, the young graduate concerned, Gord McCreary, happens to be the president and CEO of Baffinland Iron Mines Corporation, a publicly-traded junior mining company headquartered in Toronto.

Since 2004, Baffinland has been engaged in a wide spectrum of activities supporting the development of the Mary River deposits.

Against a background of global economic recovery, anticipated steady rebound of iron ore prices, and steel industry consolidation, McCreary asserts: "We are on the cusp of major traction for the project. We have attracted the interest of some large companies and metal trading houses in Europe.

"At the same time, we have been talking to the federal government for eventual support," McCreary said, referring in particular to a separate 30-minute discussion in Iqaluit this past February with Finance Minister Jim Flaherty, who was attending the meeting of finance ministers from the G7 industrialized nations.

Baffinland Iron Mines holds the mining rights to five deposits in the Mary River area, approximately 160 km south of Pond Inlet. The site offers some of the coldest temperatures anywhere in the world during winters of perpetual darkness.

The company has also concluded a Nunavut Land Claims Agreement with its regional strategic partner, the Inuit.

The project's promoters are counting on producing 18 million tonnes of direct-shipping iron ore for at least 25 years. European steel mills are the primary market destination. Construction is slated to begin this summer, with first commercial shipments anticipated in 2014 if the original agenda stays on course.

Conventional open-pit mining and extraction techniques will remove the initial deposits which will be hauled to a rail-loading facility and then transported to Steensby Inlet on the southern coast of Baffin Island, where a deep-water port will be erected.

"The southern coast offers a better shipping environment than the north coast because there is now virtually no multi-year ice," McCreary indicated.

In an interview, he said the total capital cost of the land-based part of the project exceeds $4 billion. The biggest component is the railway line, at $2 billion, followed by the port at about $750 million.

Baffinland has asked Fednav Ltd. of Montreal to form the shipping consortium that will own and operate a fleet of ice-class, Capesize ore carriers. Together with Teekay Corporation, Fednav has canvassed interest from Asian and European yards to propose advanced ship designs. A fleet of between 10 and 17 vessels, operating year-round, would be required, depending on production volume and actual size of the vessels. Investments for the sea-based component of the Mary River Project could exceed $2 billion.

During the summer and fall in 2008, some 110,000 tonnes of bulk samples of iron ore were trucked from Mary River to Milne Inlet as part of a pilot project. Logistec built a temporary dock from spud barges decked with a conveyor from which the barges were loaded. Quebec's Ocean group provided and operated all the tugs and barges and brought the cargo alongside Fednav vessels at anchorage for transfer, using the ship cranes. Thus, the Federal Franklin, the Federal Maas and the Federal Hunter delivered the first iron ore from the Canadian Arctic at Rotterdam for commercial use in European steel mills. Proceeds from the sale: approximately US$20 million.

Due to the global economic downturn in 2008, Baffinland cut down its exploration and development budget for 2009 to $30 million (versus $200 million in 2008). In addition, the full-time workforce was provisionally reduced from 40 to 26 people.

While seeking strategic partners to assist in financing activities, McCreary stresses the company remains deeply committed to the regulatory review process and "continued engagement with all stakeholders."

On the financing front, Baffinland received important endorsement in March 2009 from Germany's KfW IPEX-Bank. The latter announced that the Mary River project was eligible for loan guarantees of US$1.2 billion from the German government. The German authorities back projects securing German imports of raw materials such as iron ore for steel mills.

More recently, in December, the mining enterprise completed a public offering and flow-through private placement for gross proceeds of $44 million. Capital expenditures of $37 million, mainly for core drilling for identifying the high-grade resources on Deposits 4 and 5, have been allocated for 2010.

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