Rail link would transport Yukon iron ore

Proponents of an Alaska-Canada rail link are thinking big. In a phase 1 feasibility study commissioned by the State of Alaska and the Yukon government and published in June, they estimate that the project would generate 3,000 direct jobs in Alaska's mining sector and 2,300 additional new jobs in other industries. At least 8.8 billion tons of mineral concentrates could be developed in the rail corridor in Alaska over a 30-year period, with a gross metal value of $16.9 billion, according to the study.

To illustrate the scale of the rail link's potential impact on Alaska, it's worth noting that 3,014 people were employed in the state's mining industry in 2006. The Alaska Division of Geological and Geophysical Surveys estimates that the total production value generated by Alaska's mines between 1981 and 2006 was $18.1 billion. So the rail link could approximately double the size of Alaska's mining industry - if the mines that it would serve were developed.

In Canada, new mines would generate 7,800 permanent jobs, 4,000 of which would be in the Yukon, more than 2,000 in British Columbia, and the remainder in the rest of the country. "If rail access is secured to the mammoth Crest iron ore deposit in northeastern Yukon, it is estimated that at least 28 million tons of iron ore pellets could be produced and shipped to offshore markets annually," the study says. "Projected investment for mining and pelletizing could exceed $3 billion."

Iron ore pellets majority of tonnage

Iron ore exports from the Yukon would account for an estimated 63 percent of the 50 million tons per year that would be transported on the railroad, the study says. The two next-largest types of freight, each accounting for 13 percent of the traffic, would be coal exports from British Columbia and Asian intermodal container imports. Yukon coal and concentrate exports would account for 7 percent of the traffic and the remaining 4 percent would be Alaska and Yukon inbound resupply/mineral exports. Revenue would not be commensurate with volume, however: Asian container traffic could generate the most revenue (45-50 percent), followed by iron ore (22-25 percent).

Currently the only hard rock mine operating in the Yukon is Sherwood Copper's newly opened Minto mine. There are many more Yukon projects in the exploration and development stage, but there are no immediate plans to develop the Crest iron ore deposit. A private company called Promithian hired Hatch Associates in 2002 to evaluate the company's plan for a mining and steel manufacturing operation which would involve developing the Crest iron ore deposit and the Wind River coal field.

Crest is one of the largest iron ore deposits in North America, containing an estimated total resource of over 18 billion tons of 43-46 percent iron ore, according to Hatch's study. The steel produced by Promithian's project could be used for construction of an Alaska gas pipeline from the North Slope or the proposed Mackenzie Valley gas pipeline. Without such mega projects in the vicinity, the plan wouldn't be viable, Hatch said, because there is already enough steel production in less remote locations.

"Significant uncertainties with the Crest ore noted in the reference materials include its high silica and phosphorous contents, and difficulties in elimination of sulfates to permit pelletizing for reduction to electric furnace feed. These can only be resolved through appropriately detailed investigation," Hatch wrote. "Upwards of 1 million tons per year of coal would be needed to support the iron production process directly and to provide electrical energy for the mining, beneficiation, steel production, processing and manufacturing operations, as well as for the infrastructural requirements at both sites," the study notes.

"Promithian is of the opinion that this unique and complex project could be realized, subject to the resolution of a number of uncertainties and issues raised in the high-level evaluation," the company says on its Web site. The project is being advanced to the pre-feasibility study stage to more fully assess and define these issues as well as its economic viability.

Cost of transporting pellets a factor

For the Alaska-Canada rail link to be economically viable, the cost of transportation of iron ore pellets would have to be no more than $15.75 per ton, according to the phase 1 study, because iron ore is relatively low value. Base metal concentrates are much higher value and could be transported by rail at a cost of up to $34.60 per ton. The weighted average transportation cost, factoring in the different volumes of iron ore and base metal concentrates, would be $16.59 per ton.

The cost of constructing the rail link, including contingency allowances, would be approximately $10.9 billion.

Alaska could save around $2 million per year and the Yukon and British Columbia could save around $4 million per year on highway maintenance if the rail link were built, according to the study.

The project could be funded by supply chain investors such as Rio Tinto Mining or Mittal Steel; by integrated rail owner and operating investors such as CN Rail or BNSF Rail; or by non-integrated track companies, operating companies or rolling stock investors, the study suggests.

There may also be strategic investors such as multinational companies looking for long-term supply chain security.

Economic and logistical considerations make a Tintina Trench route between Delta Junction, Alaska and New Hazelton, British Columbia via Carmacks look favorable, the study says. "While connection to an Alaska Inside Passage port would provide the shortest route to tidewater for much mineral export traffic, combined port and rail considerations suggest that Anchorage area ports might require less capital investment," the study adds.

The rail link feasibility study was welcomed by London, Ontario-based Fortune Minerals, because a segment of the railway would run past the company's Mount Klappan anthracite coal project in northwest British Columbia. The study also recommends a short-cut to the Port of Prince Rupert that would "dramatically reduce the rail haulage distance of coal products from Mount Klappan to Prince Rupert from 1,400 kilometers to just over 600 kilometers and very materially reduce transportation costs," Fortune said in a release June 27.

The Alaska-Canada rail link "would make us increasingly accessible to expanding markets in Asia as well as to markets in the U.S. and enable the mine to be expanded from the 1.5 million tonnes of clean coal per annum we are currently contemplating," said Robin Goad, Fortune's president. Mount Klappan is in the permitting stage and production is targeted for 2010.