The future of mining in Nunavut? It’s all about China

Workers do exploration work at Baffinland’s Mary River iron ore site. Commodity specialist Patricia Mohr said the project is still viable in spite of slumping iron ore prices, because of its extremely high ore grades. “If it was a low-grade deposit, it would be a no-go,” Mohr said April 8.

Patricia Mohr, a vice president at Scotiabank and the company’s commodity market specialist, speaks April 8 inside one of the Astro Theatre’s screening rooms, which was packed beyond capacity by mining executives and government officials who came to listen to her prognostications. In an equally packed second screening room, a similar audience listened to her through a video link. (PHOTO BY JIM BELL)

A influential Canadian bank economist says that if you want to predict which Nunavut mining projects are likely to make it and which ones aren’t, you have to study China.

“I pay far more attention to the Chinese economy than to that of the United States,” Patricia Mohr, Scotiabank’s commodity price specialist, said at the April 8 opening of the Nunavut Mining Symposium in Iqaluit.

That’s because China now represents more than 40 per cent of global demand for commodities.

That includes metals that lie embedded in the earth’s crust across northern Canada, such as zinc, copper, nickel and iron ore.

Many factors influence their prices — including economic growth, or the lack of it, in the U.S., the European Union, Russia, Brazil and India, as well as the growth or decline of existing ore stockpiles.

But the biggest factor of them all is China’s relentless movement towards an industrialized and urbanized future for the 1.3 billion people who live within its borders, Mohr said.

To that end, she said the Chinese government plans to build social housing for 100 million people who they will move from the countryside into the cities.

And the Chinese government plans to renovate 4.74 million housing units in shanty towns.

These and other projects are all “metal intensive and steel intensive,” Mohr said, which means mineral prices will improve by 2015, following the global economy’s sluggish growth record last year.

“I think that things will pick up from here on in,” Mohr said.

For example, this means that zinc producers, such as MMG, which operates the Izok corridor project in the western Kitikmeot can look forward to better prices in a couple of years.

MMG announced this past November that it has suspended its participation in an environmental review of the Izok project for at least a year, pending more work on an updated project description design and more work aimed at finding ways to make the plan viable.

“Zinc has been a bit of a dog in recent years. Everyone knows that,” Mohr said.

But she said that zinc is now positioned to become the “next base metal play” and she predicts that zinc will rise from its current low of about 75 cents a pound to $1.25 a pound by 2015.

The world’s current zinc reserves are getting depleted, which will lead to higher prices when supplies shrink in the near future.

Another commodity that’s due for a price increase is nickel, Mohr said, because of a decision by the government of Indonesia this past January to ban the export of all unprocessed nickel ore.

This will likely raise the price of zinc from its current low of $6.80 a pound to $9 by 2015, she said.

As for iron ore, Mohr said prices will likely remain low for a while, dropping to $105 per tonne this month because of new supplies moving into the market.

But that’s not likely to hurt Baffinland’s Mary River iron ore project, she said.

That’s because the Mary River deposit holds “extremely rich” ore grades, Mohr said.

The iron content within the estimated 365 million tonnes of ore at Mary River ranges from 64 per cent to 70 per cent. This means it requires no chemical processing and can be crushed and shipped as is.

And because of its value, buyers in Europe are likely to pay a premium for Baffinland’s product, she said.

“That’s what allows this project to get off the ground,” Mohr said. “If it was a low-grade deposit, it would be a no-go.”

Mohr disclosed that Scotiabank, her employer, has participated in the financing of the Mary River project and that bank officials asked for her advice on its viability.

“I’m very excited for the people of Nunavut,” Mohr said.

As for uranium, Mohr said that from an investor’s point of view, it’s still “a big disappointment” and “very close to the bottom.”

Right now, the spot price for uranium sits at around $33.75 a pound, down from a high of about $56 per pound prior to the Fukushima Daiichi nuclear reactor fiasco of 2011.

Japan has not re-started the 48 nuclear reactors that they either shut down or closed for maintenance, which means global demand from uranium remains weak.

But Mohr said uranium prices could pick up when China carries out a plan to build 30 new nuclear power-plant reactors.

The price of gold, a direct influence on producers like Agnico Eagle, is likely to sit at around $1,320 an ounce this year and rise to around $1,375 an ounce in 2015.

She said gold prices improved slightly over the past month because of investor fears triggered by the continuing crisis in Ukraine.

But she said gold is unlikely to hit the $1921.25 high achieved in 2011.

That’s because the U.S. central bank, the Federal Reserve, is likely to end its quantitative easing program, under which it purchases $85 billion worth of bonds and other securities each month to inject credit into the economy.

Among gold investors, this generated fear of inflation.

But the Federal Reserve has reduced those bond purchases to $55 billion a month and may eliminate the program by the fall of this year.

“Gold fell with the tapering of QE,” Mohr said