Despite Baffinland’s claims, truck route still makes money, expert says

Trucked route viable, railway route more profitable, financial analysis finds

A haul truck at the Mary River iron mine on North Baffin. A financial analysis prepared by a conservation group says Baffinland’s trucked route is financially viable. Baffinland disputes that finding. (File photo)

By Jim Bell

Contrary to the company’s claims, the truck route Baffinland Iron Mines Corp. currently uses to carry iron ore from Mary River to Milne Inlet is profitable, an expert financial analysis says.

John West, the director of international consulting firm OpenOil UG, prepared the Financial Analysis: Mary River Iron Ore Mine report for the Oceans North conservation group. Oceans North submitted the document last week to the Nunavut Impact Review Board, which is at the halfway point in a two-week hearing to consider Baffinland’s proposed expansion of its Mary River mine.

Oceans North submitted the report because it wants the public in Nunavut to get the same kind of information that Baffinland shares with investors.

“We object, as a matter of principle, to the fact that an analyst on Wall Street has access to clearer information about Baffinland’s actual plans than does a hunter in Mittimatalik,” Chris Debicki of Oceans North told Nunatsiaq News.

The OpenOil report is available on the review board’s online public registry and at the bottom of this news story. It’s now part of the evidence the review board can consider in its assessment of Baffinland’s railway-based expansion plan.

When Baffinland proposed the Mary River phase two expansion in 2014, it said it needed a railway to Milne Inlet and a doubling of production up to 12 million tonnes a year to make the project profitable.

But the OpenOil report casts doubt on that claim. After looking at a variety of possible future scenarios, the consulting firm found that while a railway to Milne Inlet would increase profits, a continued trucking operation at Mary River would still make money.

“While railway expansion would clearly be more profitable for BIMC [Baffinland Iron Mines Corp.] than continued trucking, trucking would nevertheless yield rates of return that are considered normal in many mining businesses,” the report said.

Iron ore prices rising

That’s partly because iron ore prices are on the rise, and partly because the company gets paid a premium due to the extremely high quality of the mine’s ore, which is nearly two-thirds iron.

In December 2020, the global price for iron ore reached $152 per metric ton. At the same time, the company’s estimated production costs — on the trucked route — are about $43 per metric ton.

A railway, however, would reduce production costs even more, to $17 to $18 per metric ton, making the project even more profitable, the OpenOil report said.

And they looked at a possible “Phase 3” scenario, under which Baffinland would increase production up to 18 million metric tons a year through Milne Inlet.

“According to ArcelorMittal financial statements, BIMC has already internally approved a Phase 3,” the report said.

In total, the Milne Inlet railway requires a total capital investment of about $1.4 billion.

Meanwhile, it’s likely the company has already put a lot of money in the railway-based expansion project — prior to its approval by regulators, OpenOil said.

“Company accounts suggest that over $500 million were spent in the 2017-19 period on preparations for this expansion,” the OpenOil report states.

Report inaccurate, Baffinland says

In response, Baffinland told the review board the OpenOil report is filled with inaccuracies and is based on outdated information.

“This optimistic financial analysis conflicts with the difficult reality that during Baffinland’s five-year operating history with trucking, the company has failed to be able to provide its investors with a return on their investment,” Baffinland said in a document filed with the review board.

Baffinland’s original plan — approved by the federal government in 2012 — was to build a 143-kilometre railway from the mine to a port at Steensby Inlet, which has a longer ice-free season than Milne Inlet to the north.

Baffinland still has permission from Ottawa to go ahead with that plan and ship up to 18 million metric tons of ore through Steensby Inlet.

And a 2012 Baffinland assessment said that shipping through Steensby Inlet would be less environmentally harmful than shipping through Milne Inlet, the OpenOil report said.

But Baffinland never moved forward with it and has never explained why.

Instead, in a surprise move, Baffinland did an about face in 2013 and pitched a scaled-down proposal for shipping much smaller quantities of iron ore north to Milne Inlet in trucks. It called that the “early revenue phase” and Ottawa approved it in 2014.

That same year, Baffinland presented its phase two plan. Six years later, it’s now getting scrutinized at a NIRB public hearing that began last Monday in Pond Inlet and Iqaluit.

Based in Berlin, OpenOil specializes in analyzing natural resource projects. Its clients include the governments of the United Kingdom and Germany, as well as the World Bank and the African Development Bank.

Baffinland is owned by two companies: Nunavut Iron Ore, a private equity firm that owns 74 per cent of the company, and ArcelorMittal, a European steel-maker that owns the other 26 per cent.

Info from bond circular

It’s also a privately held company. That means its financial statements are not normally available to the public.

But OpenOil was able to use financial information from other sources, including a 722-page financial document that Baffinland circulated among potential bond purchasers in 2018.

At that time, Baffinland hoped to sell about $550 million worth of bonds on Wall Street to help finance its railway-based expansion plans.

But October 2019, Baffinland persuaded the review board to remove the bond-sale pitch from its public registry. (It can still be found on the Nunatsiaq News website.)

And this past week, they moved to have the OpenOil report also removed from the registry. But the NIRB ruled Friday the document should remain on the public record.

Financial Analysis: Mary Ri... by NunatsiaqNews

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(19) Comments:

  1. Posted by Consistency on

    What a shock that they can make money by trucking, but they will just make more by rail. Also there is only so much iron ore in the ground and if they get the rail they get it faster, which means more money for the bosses right now. But less for Inuit and Nunavut in the long run. Let’s not rush into anything. The ore is not going anywhere… But if we are not careful the wildlife and therefore our way of life will be gone forever.

  2. Posted by Dan on

    They have consistently and purposefuly mislead and lied about the project
    Pure greed motivates them with no cares given to harmful environmental and local community impact. Disgraceful

    • Posted by Northern Guy on

      Greed doesn’t motivate them profitability does. They aren’t a not-for-profit they are a for-profit company with shareholders. If they can get more and cheaper ore from a railroad … why not? It’s up to the NIRB to decide if the proposal makes sense and the benefits outweigh the risks. Just like it is up to the company to decide whether or not to proceed with the project if the NIRB places limitations on it.

      • Posted by Why Not? on

        Exactly, the NIRB will make a recommendation to the government of canada – who will make the ultimate decision. But the whole point of these hearings is to explore the reasons “why not.” I mean it’s the job of all the different intervenors at the hearings to present evidence and expertise to NIRB that verifies or challenges baffinland’s reasons why.

  3. Posted by Centrist on

    Well that’s it then. I guess we should get rid of all railways in the world because I’m sure every company can somehow make a profit with trucking as long as commodity prices are high enough. And why stop there? We can get rid of elevators in buildings, transit buses, passenger trains and commercial airlines. We can always figure out another, barely profitable way to transport goods and people even if they have to hike thousands of kilometers, it would still just barely be profitable for them.
    The railway isn’t just about profit, its about practicality. Running tractors pulling 150 tonnes down a 100km dirt road in the arctic is not something any company wants to sustain for long. It is a nightmare in logistics and maintenance with too many volatile variables. A railway eliminates many of these variables as well as significantly reduces the carbon emissions associated with transporting iron ore. It’s a smart, reliable alternative that is used all throughout North America and the world for good reason. A railway is a logical next step for this mine, trucks have always just been a stepping stone.

  4. Posted by Amaguk on

    I am tired of these southern groups like Ocean’s North trying to derail this process with their exaggerations and lies. They probably feel like they need to protect Inuit from the evil south. Or maybe they just want the north to be left without any development and don’t think Inuit should have access to jobs and businesses that want to do build here. Maybe they don’t pay attention to the hard work that Inuit have done themselves to check these claims. The QIA brought in a company to investigate whether Baffinland trucking was sustainable and they found the company’s claim was true. The QIA spoke about it at the October AGM. This is the difference. The QIA did their homework before the meeting working with the company to investigate whether trucking could be sustainable while Ocean’s North just tries to blow up the hearing like they did the last time with claims and reports that rely on part information.

  5. Posted by Do Your Own Homework on

    Yes, iron ore prices are high, but if Oceans North or OpenOil were truly interested in presenting the facts, they should present ALL the facts. ArcelorMittal owns about 25% of Baffinland. Check out pages 138 and 139 of ArcerlorMittal’s 2019 Annual Report, available on its website. ArcelorMittal reported a loss from their part of Baffinland of $98 million in 2018 and $72 million. If they are losing that much money from only 25% ownership, can you imagine what the whole operation is losing? My guess is that they have a very large hole to dig out of from very low iron ore prices when they first started operating at very low production rates in 2015 and 2016.

    When Baffinland says they need to expand the project to be profitable, I think they mean it.

    • Posted by Consistency on

      How much was spent in those years buying a shipping all the rail track to Mile Inlet for he mine before any approval? I would think a lot. but by buying it at that time would that not make BIM look less profitable? that is a huge unneeded expense until the approval goes through. Also with the faith i have in BIM being honest it would not surprise me to fid there are other expense that were premature.

    • Posted by Sustainable development and transparency on

      I’m an Inuk and my immediate thought is that BIMC should also offer shares and bonds to every Inuk, or every Nunavummiut, or InuitFirms/Nunavut businesses/ Canadian companies and sever its ties with foreign companies. There is no need to assume this is about ‘us Inuit vs them’ mentality. Inuit can be very shrewd business-wise too, they see the investment returns this project can yield, and likely see this as a profitable joint-venture, if done right. The overall profit after construction/production/operation costs can sustain a long-term economic wealth badly needed in the Tununiq/Tununirusiq/Qutiktuq/Amiituq regions; like an engineering/geology program, Inuit business start-ups, more Inuit employment and training opportunities, and a more competitive airline industry and shipping transport of cheaper goods to the region etc. The Inuit are not saying no to this project, the Inuit are saying work with us as joint-decision makers, to make it a truly sustainable project that protects the environment as much as possible, yet also benefits the region.

  6. Posted by Jimmy on

    Baffinland has changed a lot in 4 years.
    New management brought this company forward.
    They literally do anything for the Inuits and treat them with respect.

    What about the hunters who were lost 3 weeks ago?
    Baffinland sent out a plane and located the hunters and called it in to the community. But nobody knows about that.
    They’re paying the Inuit home for the pass 1 year because of covid.
    They supplied millions for day care and groceries.
    They sent Inuit to Ottawa for training on heavy equipment.
    They supply hunters with food, heat, fuel, repairs on skiidoos. Transportation and they haul sleds for them from milne to Mary.

    This company bent over backwards for the northern communities.

    It costs a lot of money to go to steenby. They just don’t have that capital to go ahead do it.
    Not everyone has 5 billion dollars for projects

    Take a look back and ask your community who works there. I bet they like it. They all
    Make really good money and opportunities.
    I seen a cleaner from qil become a rock truck driver making 100k+ a year.
    It’s people from the outside or don’t know baffinland or it’s old ways. Please educate yourself and don’t listen to the bullshit.

    As for the wildlife impact. Every Inuit I talk to says it’s from over hunting the caribou and some
    Migrated off the island.
    1990 – 100 000 caribou
    2021 – less then 3500

    And for the trucks causing a sustainable way of making money. The amount of service, fuel, etc that those trucks go through to get the iron ore and what a big environmental impact running DIESEL fumes of 100s of trucks everyday could be elimated with one train. The carbon foot print alone in all that change would be huge. I would love to see the numbers compared to truck vs train.

  7. Posted by Steve on

    Those of you posting comments. If you work for Baffinland please indicate this.

    • Posted by U Zig I Zag on

      I love this idea. Let’s also have everyone post their ideological affiliation (including who they voted for in the last election), their DNA breakdown (including the ethnic identities they ‘identify’ with), and their education level. Once these have been assessed we can determine which opinions are valid and which are invalid. Maybe we can even start deleting comments from the most disfavourable backgrounds. You know who you are…

      • Posted by Don’t Erase Me on

        Let’s not forget gender identity. We need to know who is male – female, non-binary, gay curious, LBGTQ2S+, Trans, TERF, gender fluid… Because, the patriarchy

  8. Posted by Ron Theriault on

    I would like to go to work for your company.To drive truck of 50 ton and more. I can send you my C.V

    Thank you very much

    Ron Theriault

    • Posted by Just stop on

      Why do people do this?

  9. Posted by Mitigation measures of the two options on

    It would be good if the analysis can be based on which option creates less environmental risks in terms of dust control. Currently, the 100km tote road creates alot of dust, contaminating more than 100mile radius in the surrounding area, affecting marine, land and water animals. If a railway was built, can it produce less dust?

    I don’t think its either or the tote vs railway, I think it might be utilizing both – a tote road plus a railway. And BIMC needs both to produce more to pay for the cost of construction / operations and be competative. The question is how it can do so while safeguarding the environment.

  10. Posted by devils advocate on

    it might be “making money” as in profits per operation, but i don’t think its paying back the initial investment of the purchase, and considering investing monies that had to be paid back. i’m using rough figures, but didn’t AM/NIOA, the parent companies, pay more than 800 Million to purchase this mine? considering the operating costs, since day one, the investors money, all for the sale of the ore to date, has it paid itself off yet? I don’t think it has come near to breaking even…..yet….but it will, and when it does, all the rest will be gravy. thier initial estimates were in the range of 1Billion profits per year based on $65 per ton per 23MT a year? it will be gravy, just not for a little while.

  11. Posted by Northern Guy on

    As an investor and a manager you want your company to be able to make enough money to withstand shocks in the price of iron ore. Trucking may be profitable but only marginally so, any decrease in iron ore prices may drive the project into the red.

  12. Posted by Centrist on

    Ocean’s North seems to focus most of their efforts on de-railing an iron ore mine’s expansion plans. It’s a shame they don’t pay any attention to the other mines in the arctic, especially mines that still use large amounts of cyanide for gold extraction and processing. I guess iron dust poses more of an environmental hazard than vast toxic tailings ponds that may one day leak. Maybe this is all just a distraction from what’s really happening in the arctic.


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