Nunavut mining sector has hit rock bottom, economist says

Scotiabank’s Patricia Mohr, a commodities specialist, speaking at the Nunavut Mining Symposium April 5. She says base metal prices have sunk to a new low but she expects they’ll grow again by the end of the decade thanks to a steady demand and an expected decrease in supply. (PHOTO BY STEVE DUCHARME)

Nunavut’s struggling mining industry can look forward to slow but steady recovery in market value late this year and into the next decade.

So says Scotiabank’s former vice president and commodity economist, Patricia Mohr, the keynote speaker April 5 at Nunavut’s Mining Symposium now underway in Iqaluit.

“I’m a born optimist on this subject but I think we’re virtually at the bottom now,” Mohr said to an audience at Iqaluit’s Astro Theatre.

“I think for the base metals we’re going to end the decade with stronger prices.”

Mohr retired from Scotiabank as of April 1, but she still does speaking engagements.

Her comments come after a particularly nasty year for global commodity prices, which have plummeted steadily since 2011 and are close to erasing all growth made since 2001.

The price of iron ore, a vital component to Nunavut’s mining industry, has lost almost two-thirds of its value in recent years: a paltry $55 US per tonne in March 2016, which is down from a peak of $155 US in 2013.

Baffinland Iron Mines Corp., operator of Nunavut’s Mary River project in North Baffin, has struggled to hit its projected targets for the mine, citing poor demand and historically low prices for iron ore on the global market.

In September 2015, the company announced it had temporarily cut wages for employees by 10 per cent to deal with the lost revenue.

“Last year we had quite a swoon in overall commodity prices,” Mohr said on the troubles of the industry, whose fortunes would be bleak, she had predicted at the 2015 Nunavut Mining Symposium.

The price of iron ore has been driven down in part, Mohr said, because of global battles for cheap exports to China, the worlds largest consumer of iron ore.

That’s played out mostly in Australia and Brazil, where three of the main iron ore companies —Vale, Rio Tinto and BHP Billiton— established mines with low operating costs and cheap shipping to the Far East.

The move pushed mines with higher operating costs, such as Mary River, out of the market, said Mohr.

And as China’s economy slows down, the demand for iron ore continues to decrease.

That further complicates matters for high cost operations such as Mary River, which now has to compete with cheaper competitors in a shrinking marketplace.

In the short term, Mohr said Baffinland can rely on the high grade of iron ore from Mary River to fetch premium prices from customers in developed economies such as the Eurozone.

“The reason that project [Mary River] continues to move ahead is the richness of the ore. More than anything, it keeps that project going,” she said.

Many iron ore mines in China are closing, Mohr said, and that will eventually decrease supply for the resource and correct the market as demand returns.

I think that the mine development deferral over recent years is going to gradually tighten supplies… and we can look forward to a period of stronger commodity prices in the first half of the next decade,” she said.

“Nunavut will benefit from that.”

Baffinland is currently negotiating with the Nunavut Impact Review Board to expand its operation, allowing for a larger volume tote road between Mary River and ports in Milne Inlet, along with an expanded shipping season that will rely on icebreakers to keep lanes open.

Baffinland is also considering resurrecting a possible rail route between the mine and Milne Inlet.

But Baffinland’s proposed “Phase II” project has run up against opposition from the Qikiqtani Inuit Association, which says the deal it cut with the corporation in 2013 needs to be renegotiated because of the potential for increased environmental impact.

“I urge you all as Nunavummiut to do what you can to ensure that that project is reasonably cost-competitive,” Mohr stressed in her presentation.

“I know there are environment issues that are very important. We have to protect the environment but we have to try and make sure that you can keep that project going. In the end it will create some great value for the people of Nunavut.”

Mohr’s comments come with a caveat. Scotiabank, her employer, is involved in the financing of the Mary River project and she told the audience so.

As for other base metals, Mohr is expecting modest improvements over the next few years:

• Zinc is expected to continue to fall in 2016, down to $0.83 US per pound this year from $0.88 in 2015, but is forecast to improve to $1.25 in 2017 as mine development in the sector is deferred and demand returns to the market.

• Modest recovery in nickel prices, valued at $5.37 US per pound in 2015, is expected to rise to $6.00 by 2018. Mohr said low nickel prices reflect weak global investment in “heavy” industries like the struggling oil and gas sector that rely on high alloy steel for infrastructure.

• Gold prices are forecast to grow to $1,300 US per bullion by 2018, up from the current price of $1,160 in 2015. But if the US dollar continues to gain strength, it will lessen the demand for gold, Mohr warned.

Nunavut’s mining symposium is scheduled to continue in Iqaluit’s Frobisher Inn until April 7.