* Canadian National project backed by Quebec pension fund
* Railway needed for mine projects to proceed
* Junior miners fear transport costs may run too high
* Some miners discuss developing their own railway
* Project part of Quebec's 25-yr plan to develop north
By Susan Taylor and Julie Gordon
TORONTO, July 9 Canada's biggest railroad wants
to build a C$5 billion ($4.8 billion) rail line to ship iron ore
from isolated northern Quebec to port, a crucial link that could
transform Canada into the world's third-largest producer of
steel's main component.
Canadian National Railway Co's 's 800-kilometer (500
mile) project, backed by Quebec's public pension fund, is still
years away from becoming a reality. Indeed, the 2017 projected
start-up date looks ambitious, given the complexity of
negotiations that lie ahead.
The junior miners needed to fill the rail cars want to keep
a lid on transport costs, and some have even floated the idea of
building their own rail line rather than signing on to CN's
The proposed railway also faces an intensive consultation
process with governments and local native groups before work can
begin. Assuming those talks are successful, construction over
the rugged terrain would take three years to complete.
Stretching from the Port of Sept-Iles on the St. Lawrence
River to north of Schefferville, on the border between Quebec
and the province of Newfoundland and Labrador, the line will
pass numerous mining projects in the Labrador Trough - a
geological formation rich in iron ore.
There are already two rail lines in the region but their
capacity is insufficient to meet demand from planned new mines
in northern Quebec and Labrador.
The Quebec government says the region represents potential
private investments of more than C$20 billion.
The privately funded rail project is just one piece of
Quebec's far-reaching Plan Nord, a 25-year plan that targets
C$80 billion in public and private investments to develop a
resource-rich area of 1.2 million square km, roughly the size of
South Africa, with mining, renewable energy and infrastructure.
The whole plan is contentious for Quebec's aboriginal Innu
people, who last week blocked access to mines and
development-stage projects in the Trough in protest against Plan
Nord, which they say will damage the environment and their
traditional way of life.
For CN, the railroad could bring a huge boost to its annual
revenue, said RBC Capital Markets analyst Walter Spracklin.
"If the contemplated mines do come through, this could be
upwards of C$2 billion in annual revenue for Canadian National,"
the transportation analyst said.
CN needs to ship at least 75 million to 80 million tonnes a
year for the project to be feasible. But Spracklin said his
conservative estimate of 125 million tonnes translates into rail
revenue of C$2.2 billion. In 2011, CN recorded C$9 billion in
"It's not a slam dunk," Spracklin said, pointing to heavy
capital requirements, uncertainty around the planned mining
projects and the sheer remoteness of the location. "It's not
like there was this gem of an opportunity out there for anyone
who wanted to pick it."
CN's partner in the plan is Caisse de depot et placement du
Quebec, which manages the Quebec pension fund and will own a
third of the railway.
"We're a long-term investor and infrastructure are the type
of projects where we like to invest," said spokesman Maxime
Chagnon. "We always want to have a partnership with businesses
that are leaders in their sector."
The revenue numbers are big enough to stoke fear among
junior miners, who need a railway to get ore to market but
cannot operate mines profitably if transport costs run too high.
"Rail is definitely a service that the industry badly
needs," said Sandy Chim, chief executive of Century Iron Mines
Corp, which is developing the Attikamagen Lake
iron-mine project near Schefferville with partner Champion
Chim worries that CN's plan, which asks miners to make
minimum volume commitments and pay rates tied to the final
project cost, is too profit focused and could hurt development.
He wants assurances that the railway is there to support the
miners, rather than squeeze profits from them, with a long-term
set rate system that ensures fair returns.
"To make Canada the third-largest producer, Canada has got
to have some long-term competitiveness on a very major cost
component - which is the infrastructure," he said.
Current Canadian output of the metal, which is too heavy to
be transported by truck, is around 40 million tonnes a year,
while top global producers Australia and Brazil have a combined
output of more than 850 million tonnes a year.
Assuming the Labrador Trough projects go ahead, as well as
the huge Mary River mine on Baffin Island in the Canadian
Arctic, Canada could produce as much as 250 million tonnes a
year by 2020, overtaking India as the world's No. 3 producer.
China is also a big producer, but the government does not
release detailed production figures.
The iron-rich Labrador Trough stretches some 1,500 km along
the border between Quebec and Labrador.
Mines were first developed there in the 1950s, but many
closed or were sold during the 1980s and 1990s as demand fell.
With the recent rise in iron ore prices, driven by rapid
urbanization in China and India, the Trough is booming again.
Companies such as Century, Alderon Iron Ore Corp,
and New Millenium Iron Corp are all developing projects
there. Add expansions from current producers like ArcelorMittal
and Cliffs Natural Resources Inc, and all eyes
are on the region's limited infrastructure - especially rail.
The new production will easily surpass capacity on the
region's two existing railways, one of which is privately owned
by Arcelor and unlikely to be contracted out to other miners.
The second rail line, owned by Rio Tinto's Iron Ore
Co of Canada, has extra capacity. But it is expected to fill up
over the next three to five years as new mines start producing.
"At the end of the day, it is only one line with 80 million
tonnes of capacity," said Tayfun Eldem, chief executive of
Alderon. "Once you get to 80 million tonnes, that's it."
Alderon is in talks with Rio's common carrier line
to ship material from its Kami project to port, but some other
junior miners have held preliminary talks on building their own
railway. Without a third railway, many of the new mines will
simply not be built.
Century's Chim floated a plan earlier this year for a shared
rail line with Adriana Resources Inc and Champion.
China's deep-pocketed Wuhan Iron and Steel Co Ltd is
a strategic investor in both Century and Adriana.
Chim has stepped back from that plan since then, saying he
hopes talks can bring Canadian National, the miners and
government together. The railway said it has been talking with
customers and feels its project is robust.
"We believe in the great economic potential for the northern
region of Quebec," said CN spokeswoman Julie Senecal.
A China-financed plan would also have less political appeal
than the "made in Quebec" partnership of Montreal-based CN and
the Caisse, the province's pension fund.
"We have a very good opportunity here to go from a region of
untapped potential and to start tapping that potential and to
realize the value from it," said Adam Low, a mining analyst with
Raymond James in Toronto.