Quebec commits up to $20 million for new Labrador Trough rail line

Quebec commits up to $20 million for new Labrador Through rail line

One of two existing railways in the Trough, the Quebec North Shore 
and Labrador line runs a 418-kilometre route between 
Labrador City and Sept-Isles.

Iron ore mining in the Labrador Trough region of Canada has been a hard sell as of late, but the Quebec government's commitment of up to $19.2 million ($Cdn 20 million) for a feasibility study on a new rail link that would connect mines in the area to ports, may be about to change that.

The funding, announced as part of this week’s provincial budget, will back up a study to estimate costs and define the best railway option, including boosting capacity on current lines and the construction of a new one.

While the 1000-kilometre-long area —home to one of the world’s largest high-quality iron-ore deposits— seems attractive to miners, they are not jumping from joy on the news. There still are uncertainties in the market, such as current prices sinking close to two-year lows and the fact some miners have been either shelving projects in the region or having difficulties selling them.

Rio Tinto (LON:RIO) failed to find last year a buyer for its 59% stake in Iron Ore Company of Canada (IOC) and Cliffs Natural Resources (NYSE:CLF) said in mid-February it was shelving an expansion of its Bloom Lake mine in the region.

On top of that, the Canadian National Railway (CN) last year shelved a feasibility study for the construction of a $5 billion rail line and terminal handling facility to serve Labrador Trough, citing adverse market conditions.

Currently there are only two rail lines in the area operated by ArcelorMittal (NYSE:MT) and IOC.

Quebec commits up to $20 million for new Labrador Through rail lineMiners operating in the area, such as Champion Iron (ASX, TSX:CIA) welcomed Quebec decision, saying it will make people to start viewing the assets differently.

“They were distressed assets before with a high cost of infrastructure and a falling iron ore price. A new rail link would make the assets much more economic,” Champion chairman Michael O’Keeffe said in a statement Friday.

He added there is a high level of interest in the Labrador Trough as the world’s major steel industry groups already see the potential of the region to supply high quality iron ore product.

With an annual production estimated in 50 million tonnes, a wide range of listed and private iron ore miners are currently active in the region, including ArcelorMittal, Rio Tinto, WISCO, Mitsubishi, Posco, Tata Steel, Cliffs Natural Resources, Alderon Iron Ore, China Steel and Hebei Iron & Steel, Labrador Iron Mines, and Champion Iron.

Map courtesy of Labrador Iron Mines.

Image by Melissa King