Iron looks like solid commodity in Nunavut

Nunavut has a reputation for being one of the most remote parts of the world, but for Toronto-based Baffinland Iron Mines, the Canadian Arctic territory's proximity to Europe is one of its biggest selling points. Western Europe currently imports around 50 percent of its iron ore from Brazil, and Baffinland believes that Nunavut could be much more convenient. Of course, it also helps that the Mary River property hosts five high-grade deposits that could yield 10 million metric tons of iron ore per year for 25 years or more.

Mary River, which is located just across the water from Greenland, is 3,100 nautical miles from Rotterdam, the largest port in Europe. Iron ore samples from the property are already shipped regularly to Germany, where metallurgical laboratory SGA tests them. The testing is especially rigorous because Baffinland will not have an on-site processing facility that could alter the product. By shipping ore direct, without putting it through a processing plant, Baffinland hopes to get through the permitting process quickly and start test shipments to customers as early as 2008.

"Whatever the big guy gave us is what we've got, so we've got to show the end consumers that not just in years one through five, but for years 10 through 25 and beyond, that we've got the goods for it," Baffinland's president and CEO, Gord McCreary, said in a presentation at the BMO Nesbitt Burns Global Resources Conference in Tampa, Fla., Feb. 27.

Average grade 67% iron

So far, the product is looking good. The average grade on the property is around 67 percent iron, with very low moisture content, which is important because moisture adds to shipping costs. Levels of deleterious minerals such as phosphorous in the iron ore are also extremely low. By contrast, iron ore from Australia is often high in phosphorous. "Premium price lump ore is a key to this project," McCreary said. "We do expect to have a very large percentage as a premium lump product, and you get about a 27-percent increase in price over fines for lump ores."

The Mary River deposits were discovered in 1962 and feasibility studies for them were done in the 1960s and '70s, but political issues prevented development. Arctic sovereignty issues were unresolved and the Canadian federal government didn't want to spend taxpayers' money on infrastructure to support the South African mining company that owned the property at the time.

Baffinland expects to build a deepwater port and a rail link as part of the project, and is looking at two possible port locations, one to the north, about 93 kilometers away from the mine site, and another to the south, about 140 kilometers away. The northern port would be ice-free for just over three months and the southern port would be ice-free for about four-and-a-half months. At the moment all supplies for the project come in by air, and the company also uses a 100-km ice road in winter.

Resource may be double that indicated in '60s

"Hopefully we're going to end up with a resource that is more than double the resource that had been indicated in the '60s," McCreary said. "We do truly believe that this is a world-class situation, that there will be the opportunity to expand this resource substantially." The first new resource estimate for Mary River in 40 years is due out in May. Now is the right time to build the mine, McCreary told Mining News, because the price of iron ore was in decline for the two decades until 2002, controlled by the Japanese steel industry, but Chinese demand in the past few years has caused the price to double.

Last November Japan's Mitsubishi agreed to invest C$5.5 million in the project for a 7.2 percent interest in Baffinland. The Canadian company would like to attract an additional strategic investor or investors. "That means somebody who's bringing more than money to the table, it could be a steel mill, it could be a mining company or it could be a shipper or it could be whoever, but we're in some discussions with a number of different parties and we'll see how that goes," McCreary said. The German laboratory SGA is owned by six steel mills and one possibility would be for Baffinland to sign agreements with those mills, he added.

2006 budgeted C$22.6 million

Baffinland's budget for the project in 2006 is C$22.6 million, and the company expects to move from the scoping study level to the bankable feasibility study level. McCreary dismisses the low ranking Nunavut received in the Fraser Institute's annual survey of mining companies. "The best evidence of how good Nunavut is, is C$200 million of exploration expenditure, which makes it a prime exploration destination," he told Mining News. "There is an embryonic bureaucracy and government entity, so it's a learning curve."

Nunavut separated from the Northwest Territories in 1999, and 85 percent of its population is indigenous, mainly Inuit. "There are only 29,000 people in Nunavut and it's a huge chunk of real estate," McCreary said. "It needs economic development, and we want to be part of that economic development. We are very pleased with the reception that we've got there and they are very pleased with us."

Toronto-based Tahera's Jericho diamond mine has already been permitted in Nunavut, while two Vancouver companies, Miramar Mining and Cumberland Resources, expect to obtain permits for gold projects this year.