Massive Iron Ore Mine Approved in Canadian North

The Canadian government has given the green light to a huge iron ore mine in Nunavut, a territory in northern Canada, even as other iron majors pull back on capex or delay expansions due to economic uncertainty and the softening price of the steelmaking commodity.

The Mary River project being developed by Baffinland Iron Ore Mines Corp is a joint venture between steel giant ArcelorMittal (NYSE:MT) and Iron Ore Holdings L.P. The proposed open-pit mine would process an annual 18 million tonnes of iron ore over a 21-year minelife, making it one of the largest iron mines to be approved in the country in recent memory.

By comparison, ArcelorMittal’s Mont-Wright and Fire Lake mines in Canada’s Labrador Trough produce 14 million tonnes per year, while the Carol Lake mine, also in the Trough, cranks out 17 million tpa.

The Minister of Aboriginal Affairs and other responsible ministries on Monday approved construction of the mine —which involves a capex layout of $4 billion for a road, 149-kilometer railway and deepwater port, along with mine infrastructure — on the recommendation of the Nunavut Impact Review Board. The approval comes with 180 conditions the partners must meet to mitigate environmental impacts including disturbance to local caribou populations, walrus, seals, polar bears, beluga whales and other wildlife.

The mine now moves into the permitting phase. Construction is slated to begin next summer with production coming in 2017.

The project is a significant boon to the territory’s economy. The mine has the potential to triple Nunavut’s annual rate of economic growth and draw in some $5 billion in taxes and royalties to the territorial government over the two decades it operates.

“The Mary River iron ore project has undergone a thorough review to ensure that  it will be developed in a sustainable manner, allowing generations of Canadians to benefit from the jobs and economic growth it will generate,” stated Leona Aglukkaq, the Member of Parliament for Nunavut, in a press release.

The Globe and Mail quoted an analyst at CIBC World Markets saying the mine “would be capable of supplying all of Europe’s needs, potentially displacing dominant iron ore producers like BHP Billiton and Vale SA.” The analyst noted the project is “one of the best undeveloped iron ore deposits in the world” considering its high grade and “potential for extremely low costs of production.”

Advancing the project now appears to be at odds, however, with some of the other industry players that have recently scaled back expansion plans.

Cliffs Natural Resources (NYSE:CLF), the largest producer of iron ore pellets in the US, said last month it is delaying an expansion at its Bloom Lake mine in Quebec and lowering production at two other mines in the US.

And Vale, the Brazilian iron ore powerhouse, cut 2013 capital spending by 24 percent following a drop in iron ore prices to a three-year low in September, Reuters reported, as China, the main consumer of the metal, scales back demand on slowed economic growth.

Prices have since recovered to around $115 a tonne.