The iron man of Baffin casts about for financing

This map shows the route that huge ore-carrying, ice-breaking vessels would use to carry ore from Steensby Inlet to Rotterdam. The vessels would operate 12 months of the year, averaging about 12 shipments a month. (ILLUSTRATION COURTESY OF BAFFINLAND IRON MINES CORP.)

Diesel-electric locomotives like these, each pulling up to 110 hopper cars laden with high-grade iron ore, would move every day along a 143-km railway that Baffinland wants to build between Mary River and a deep sea port at Steensby Inlet. Their target date for the project is now 2016. (PHOTO BY JIM BELL)

Gordon McCreary, the CEO and president of Baffinland Iron Mines Corp., controls a slide show from his laptop computer during a talk he gave Feb. 5 during a speakers forum held in conjunction with this past weekend’s G7 finance ministers’ meeting in Iqaluit. (PHOTO BY JIM BELL)

The Baffin region’s iron evangelist, Gordon McCreary, said last week there’s just one big item left on the Mary River iron project’s checklist: to find investors willing to put up more than $4 billion to pay for it all.

Armed with a promotional video, a Powerpoint slide show and hefty chunks of high-grade iron ore samples, McCreary, the president and CEO of Baffinland Iron Mines Corp., pitched the virtues of his project to an audience of journalists and international visitors attending a speakers’ forum held in connection with this past weekend’s G7 finance ministers meeting.

“This place is begging for an economic underpinning. We’re ready to play our part,” McCreary said.

As for potential investors, McCreary says the company has received “strong interest” from several global lenders.

One encouraging sign is that the German government now considers the project to be strategically important to their country and has declared it to be eligible for a $1.2 billion loan guarantee, he said.

“Don’t you think we’re important to Canada too?” McCreary said.

The Mary River project, whose first phase was originally thought to require about $1.5 billion to cover start-up costs, now needs at least $4.1 billion to start production by the company’s new target date of 2016, McCreary said.

But McCreary said Mary River’s estimated production costs are so low, investors could expect to make their money back in as little as four years.

That’s because the site’s gargantuan iron ore deposits, five in all, hold what may be the purest grades of any undeveloped site of its kind anywhere in world.

Numerous tests have revealed that the mountains of dense black hematite and magnetite rock at Mary River contain between 65 and 68 per cent pure iron.

This means the ore requires little processing on site, beyond crushing it into pellets for shipment to buyers in Europe.

In turn, McCreary predicts the project’s ore production costs can be kept as a low as $15 per tonne, while fetching a price of up to $100 per tonne.

“You can see that the profit margins are enormous,” McCreary said.

Baffinland’s cost estimate for construction of the mine site itself is relatively modest: $591 million.

It’s their transportation network that accounts for the biggest start-up expenses.

To move 18 million tonnes of ore each year to a deep sea port at Steensby Inlet on Foxe Basin, the company must build a 143-km railway, much of it across permafrost.

This railway scheme alone, which would require numerous bridges, culverts, dikes, berms, ditches and at least two short tunnels, now carries an estimated price tag of $1.2 billion.

Three ore transport trains would each pull up to 110 hopper cars laden with ore down to Steensby Inlet every day, travelling at speeds of between 60 and 75 km/h. These trains would also move supplies up to the mine site.

A fourth train, for passengers, would carry workers up to the site from the port three times a week.

As for the Steensby Inlet port, Baffinland’s estimated price tag for that project is now $706 million.

From there, a fleet of enormous ice-breaking cargo vessels — up to 190,000 tonnes in displacement — would carry ore from Steensby Inlet through Foxe Basin and Hudson Strait to European ports such as Rotterdam for delivery to steel mills in Germany.

These vessels, now being designed by the Korean firms Daewoo and Samsung, will operate 12 months a year, and average 12 shipments a month.

In the summer, ship traffic at the site would increase to about 17 visits per month, when smaller non-icebreaking vessels would be expected to bring supplies and materials.

The cost of securing the required ore carriers isn’t part of Baffinland’s estimates. To get that work done, the company has struck a partnership with Fednav, a long established shipping company in Montreal that will work with ship-owners and shipyards around the world to acquire the fleet.

If Baffinland is able to start construction in 2012, the operation would be built in four years, using a construction work force of up to 2,680 people during the peak period.

After mine operations start, the company would employ about 275 people at the site and another 175 people at the Steensby Inlet port.

In 2010, Baffinland expects to spend $37 million on the project. That includes paying for more test drilling, the completion of a draft environmental impact statement and the completion of a draft Inuit impact and benefits agreement with the Qikiqtani Inuit Association.

The company has already spent $200 million on the project, including $98 million on Inuit companies such as the Qikiqtaaluk Corp., who are contracted to supply Inuit workers and supply other services.