UPDATE 1-Canada approves massive Arctic iron ore mine

Mon Dec 3, 2012 7:21pm EST

Related Topics

* Developer Baffinland needs project certificate, water permit

* Massive infrastructure needed to make mine a reality

* Iron ore prices falling on slower demand from China

By Julie Gordon

TORONTO, Dec 3 (Reuters) - Canada, hoping to spur economic development of its far north, has approved the construction of a massive iron ore mine in the Arctic territory of Nunavut that could help top steelmaker ArcelorMittal reduce its dependence on outside suppliers.

The open-pit Mary River project on remote Baffin Island was approved on Monday by the Minister of Aboriginal Affairs and Northern Development, based on the recommendation of the Nunavut Impact Review Board.

"It's a game changer for Nunavut and particularly for Baffin Island," said Minister John Duncan.

The project "will bring infrastructure and much economic activity and many jobs to the area and, of course, revenues to government and to the Inuit organization," he said, referring to the Inuit aboriginals in the region.

That said, Mary River - which could to produce at least 18 million tonnes of iron ore a year over a 21-year mine life - is still years away from production, if it ever gets off the ground.

The project needs its project certificate and a water license before work can proceed.

Baffinland Iron Mines Corp, the ArcelorMittal subsidiary developing the mine, also needs to finalize an impact benefit agreement with the local population.

"This is very much a transitional point for us from the environmental assessment phase to the regulatory permitting phase," said Baffinland spokesman Gregory Missal. "It is a long process but we're getting there."

Once all the pieces are in place, Baffinland will turn to its shareholders to make the call on whether construction will go forward. Arcelor holds a 70 percent stake in the company, with Iron Ore Holdings LP owning the remaining 30 percent.

Considered one of the richest undeveloped iron ore deposits in the world, permitting the Mary River project has already taken nearly five years. It is expected to cost some $4 billion to build, including related infrastructure.

ArcelorMittal, which gained control of the rich project after a contentious bidding war in 2011, had been building up its iron ore division in an effort to reduce its dependence on top miners such as Vale SA, Rio Tinto and BHP Billiton.

The company is also in the midst of an expansion at its iron ore projects in the province of Quebec.

Benchmark iron ore prices have tumbled in recent months, reflecting slower demand in China, the world's largest steel-consuming nation. That has prompted miners around the world to scale back on expansions and shelve higher-cost projects.

ArcelorMittal is in exclusive talks with South Korean steelmaker POSCO over the sale of a 15 percent stake in ArcelorMittal Mines Canada, which operates the Quebec projects, a source who has knowledge of the matter told Reuters on Monday.

Situated above the Arctic Circle, Mary River is one of the most isolated mining projects in the world. Temperatures at the site regularly dip below minus 30 degrees Celsius, and there is 24-hour darkness from November to January.

Critics of the project say the mine is simply too ambitious to work in such an inhospitable environment.

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