* Costs of developing, operating territory's mines are
* Lack of infrastructure, labor shortages hold back projects
* Arctic environment proves difficult despite warming
By Julie Gordon
TORONTO, March 30 The prospects of a mining boom
in Canada's Arctic territory of Nunavut - once as bright as the
Northern Lights - are fading fast as costs in the inhospitable
region spiral higher, forcing writedowns on two major gold
The sparsely populated territory has gained a reputation as
one of the most promising regions in Canada for exploration,
with prospectors promoting discoveries ranging from gold to
uranium. But getting the ore out of the ground is a different
While climate change has made it easier to find mineral
deposits in Nunavut, the task of mining is complicated by a lack
of roads and other infrastructure, the still-crippling cold and
the challenge of attracting and retaining an adventurous
Agnico-Eagle Mines, which owns the only working
mine in Nunavut, recently booked a partial writedown on changes
to the mine plan at Meadowbank, wh ile c ash costs at the gold
mine have risen to more than $1,000 per ounce.
That happened just months after a fire destroyed the mine's
kitchen, crippling staffing levels and slashing into 2011 gold
output, illustrating how susceptible remote projects are to the
even the smallest operational hiccups.
"It is a high-cost part of the world to operate in," said
Agnico's chief executive, Sean Boyd. "There are risks in that
part of the world, no doubt about it."
It's a risk Newmont Mining isn't willing to take.
The world's No. 2 gold miner shelved its Hope Bay project in the
northern territory and booked a $1.6 billion writedown after the
economics of the project failed to meet its investment criteria.
The flurry of bad news could spell trouble for companies
such as Sabina Gold and Silver, North Country Gold
and Kivalliq Energy, which are developing
everything from precious metals projects to uranium deposits in
Analysts say the challenge is to prove that the benefits of
their projects outweigh the potential risks of building a
billion-dollar operation in a ruthless terrain.
"In these parts of the world you don't have railways, power
lines and road access," said John Hayes, a mining analyst with
BMO Capital Markets, "so call them barriers to entry to mining
in the north - I think they're pretty real concerns."
Without access to hydro-electricity, projects in Canada's
Far North are dependant on diesel fuel to generate power. Agnico
uses up to 60 million liters of diesel gasoline a year at
Meadowbank, making energy one of its biggest cost pressures.
That fuel, along with other supplies like 2,500 liters of
ketchup and 200,000 eggs, are transported once a year by ship to
a port at Rankin Inlet, then up the river to Baker Lake, where
items are stored for year-round use.
All said, operating costs at the mine, located some 2,600
kilometers (1,600 miles) north of Toronto, have been far higher
than originally expected. That, along with issues at the
company's Goldex mine in Quebec, sent shares tumbling more than
48 percent in 2011.
Despite the challenges, Agnico is not backing away from
mining in Canada's northern realms. The company is moving
forward with its Meliadine project, also in Nunavut, though it
is taking a more cautious approach.
"We went from a few tents to an 8,000 tonne a day operation
at Meadowbank in three years," said Boyd. "We took ownership of
Meliadine in 2010 and we are calling for production only in
2017, so seven years versus three years."
As desirable mining projects become harder to find, miners
are increasingly turning to far-flung regions of the globe to
meet rising demand from resource hungry China and India.
Uranium producer Cameco, with an eye on a huge
nuclear expansion in Asia, said it will be exploring at its
Turqavik-Aberdeen project in Nunavut in 2012. According to its
website, little has been done on the project since 2008.
ArcelorMittal, which bought the Mary River iron
ore deposit in 2011, has said it could start construction at the
remote deposit on Baffin Island as early as this year.
"China and India are trying to get their economies going and
they need resources from stable countries such as Canada," said
Vic Pakalnis, a professor at the Robert M. Buchan Department of
Mining at Queen's University in Kingston, Ontario.
Pakalnis believes the Nunavut mining boom will accelerate
ahead of an expected opening of the Northwest Passage, a sea
route through the Arctic Ocean where th e ice pack is melting due
to climate change.
The onus is on the federal government to help companies
develop infrastructure like ports and power plants in order to
make investing in Nunavut more attractive, he said.
"The resources are there, absolutely," said Pakalnis. "But
we need to make that there's the infrastructure in order to get
the minerals out and the people in."
It is the people that pose the largest challenge to the
mining industry right now. Companies around the world are
finding it increasingly hard to hire and retain skilled staff,
with labor often cited by CEOs as a top cost pressure.
The problem is especially acute in Canada's Far North, where
temperatures routinely fall below minus 30 degrees and the work
schedule is a grueling fly-in, fly-out rotation.
In order to attract and keep the best people, companies are
forced to pay increasingly competitive salaries. They are also
appealing to young engineers and geologists looking to an
adventure like no other - so long as you don't mind the weather.
"I'm a little scared about the cold," said Courtney Squires,
a soon-to-be graduate from Queen's, who has secured a job at
Meadowbank. "Apparently it's so cold it takes your breath away."