Mary River mine needs a railway to survive, new economic report says

Company commissions its own financial analysis in response to Oceans North

A haul truck carries ore from the Mary River iron mine. (Baffinland image)

By Jim Bell

Baffinland Iron Mines Corp.’s Mary River mine is unlikely to survive without a railway to carry greater quantities of ore to Milne Inlet, says a report commissioned by the company.

The report, titled Mary River Project Economics Explained, was submitted to the Nunavut Impact Review Board this month during its public hearing on Baffinland’s expansion proposal for the Mary River mine, which adjourned Feb. 6 and is to resume in March.

The company filed the economic report in response to an earlier economic analysis done for the Oceans North conservation group by a firm called OpenOil, which said Baffinland’s existing truck route is capable of making a profit for the company.

Baffinland’s analysis, done by Graeme Clinton of Impact Economics in Yellowknife, found that the Mary River project lost money — expressed by the term “negative free cash flow” — for every year it operated from 2016 to 2019.

The biggest loss – about $161 million – was recorded in 2017.

This table shows how much money the Mary River iron mine lost each year from 2016 to 2019. (Impact Economics graphic)

Those losses occurred because, starting in 2012, global iron ore prices began to fall, the report said.

It was in 2012 that the federal government approved Baffinland’s original proposal: a southbound 143-kilometre railway to a port at Steensby Inlet, with production of up to 18 million metric tonnes per year.

But when Baffinland got ready to build that southbound railway, which was fully permitted by government, investors backed away from its $5.7-billion cost.

That’s because they feared that low iron prices that year would not support such a large investment, the Impact Economics report stated.

So in 2013, the company pitched the use of a trucked route aimed at generating some revenue and proving to investors that there was a market for Mary River’s high-greade iron ore.

Annual production began with an annual allowable limit of 4.2 million metric tons per year, rising to six million in 2018.

But that route still lost money — because of high fixed production costs per ton of ore mined. And because of those high costs, the mine can only make money if global iron ore prices reach historic highs, the report said.

Those costs include:

• Maintaining two self-contained camps, which are like small towns, each with its own administration, accommodations, heating, power, water treatment, waste disposal, and catering.

• The year-round operation and maintenance of an aerodrome.

• Fuel for heating, power generation and the company’s fleet of haul trucks.

• Chartered aircraft, where the cost is the same regardless of the number of passengers.

The way to lower the cost of producing ore is to replace the trucked route with a railway, the Impact Economics report said.

“The long-term, sustainable solution to this challenge is the proposed Phase 2 North Railway,” the report said.

That’s the project the Nunavut Impact Review Board is now scrutinizing. It includes a railway, a new ore handling facility at Milne Inlet, production of up to 12 million metric tons of ore a year, and up to 176 ship transits from Milne Inlet.

However, the report said that even when the Mary River project lost money, the mine contributed to the Nunavut economy.

Over an 18-month period, Baffinland invested US$735 million into its truck route, creating 1,841 full-time equivalent jobs and 352 full-time equivalent jobs for Inuit, the report said.

To date, Baffinland has invested a total of US$3.5 billion into the project, and has seen cash flow losses totalling $310 million since 2016.

Now, the mine generates 24 per cent of Nunavut’s gross domestic product and employs 288 Inuit.

So the question of whether the Mary River mine should proceed would have “significant economic implications” for the Nunavut economy, the report said.

“The Phase 2 proposal is the future of the Mary River project. Switching to a rail transportation system and raising production ensures the Project can become financially viable,” the report concludes.

Mary River Financial Submis... by NunatsiaqNews

Share This Story

(16) Comments:

  1. Posted by Northerner on

    There you go.
    It also needs to be pointed out that the entire fleet of equipment is getting older without being replaced. Increasing operating cost to a point where eventually it will not be sustainable to continue burning through money.

    Without the railway this project is doomed to fail and all those jobs and royalties lost. Don’t assume another company will buy them out and continue. With the continued issues with Inuit, any other investors will not want to chance putting money in the mine or honestly, anywhere else in Nunavut. This project is being closely watched.

  2. Posted by Consistency on

    How much has been spent on the north rail to date? preapproval at that. I thought I read something in the $300 million range to purchase and ship the track to Milne.
    If these numbers are so bad and If they got everything they wanted, how much do they expect to make each year? how much is enough?

  3. Posted by Natalie on

    Big time sob story, with lots of back up reasoning. Where is the federal audit showing how 6 million tones could have been reached in a few months, yet they are icebreaking through nov? Unless they didnt like filling up their boats all the way, they have been doubledipping.

    Lets do some real time calculations on the number of trucks loaded, number of boats loaded, and see how much they have really been extracting. Simple math….

    Then consider the true feasibility.

    Lets not get stuck on this being the only way for north baffinmuit to make money. When royalities and projects get aimed in the beneficiaries direction, there is a lot more out there than people might think.

    Then again, baffinland has invested a tankload of money in the territory, problem is the effected communities only saw the bare bones of it.

  4. Posted by carl jorgensen on

    is this the same company that hired a biologist who was not a caribou specialist to state that the mine would not bother caribou? now they have hired somebody to state that the mine won’t succeed unless it is allowed to build a railway and increase exports. once the northern rail route is built, they will then claim it is necessary to run ships all year round or they will go bankrupt.

    it is in the nature of business to want to constantly expand.

    the southern rail route was permitted, why is it now forgotten?

    • Posted by Northerner on

      Just because Inuit hunt and kill Caribou does not make them animal experts…. otherwise they would realize that we are the reason of the decline. Overhunting is overhunting whether you accept it or not. Blaming Baffinland for our own shortcomings is not our way so why this?

      If Baffinland represents 24% of the economy imagine after the expansion. We can’t keep living off Ottawa and their funding. Nunavut is an expense, it does not produce anything of value to canada yet. Lets change that!

      • Posted by Brad on

        No value to Canada? Then why go through all the trouble of the res schools, and dog extermination? To create a dependance so Canada can claim a territory 1/5 the size of the entire country. Hang on to all that emralds and oil boys, the southerners dont deserve it. Ha

        • Posted by Dingleberry on

          Yea hey, let’s cut them off from our Nunavut oil supply.

  5. Posted by That hurts on

    Ouch, that hurts. Why is mining in the north so difficult and challenging?

    It’s crazy how much China utilized iron ore in a short span of time, which has upped the iron ore global price steadily since 2019. Baffinland’s 3-4 million metric tonne per year is very small compared to outputs by China, Australia and Brazil, which are production units by the millions. The demand grew because China literally ate up the supply.

    But sadly, an environmental dam disaster in Brazil means that the mining company has to pay billions in compensation, because it was deemed low risk in its initial start-up.

    Doing it right really matters. BIMC should do it right, with better financial and project management, environmental mitigation, community engagement, and let the bonds and stock investors to be patient with their returns.

  6. Posted by Withheld on

    “Now, the mine represents 24 per cent of Nunavut’s gross domestic product and employs 288 Inuit”…..yet alot of inuit complain about alot of things like lack of housing for one now when opportunity knocks they find other reasons to complain about. Like damn. Build the railway already. I wish my region was connected by a railway to the south so I wont have to pay so much to have food on the table. Like kAmAAN hehe

  7. Posted by Free Cash Flow on

    Of course Free Cash Flow is negative. It always is at startup. It especially is negative when “stuff” is bought before it is needed. Borrowing money to buy that “stuff” before it is needed creates Interest Expense, which makes the Free Cash Flow appear even worse.
    For many hundreds of years businesses have been using Accrual Accounting, because it gives a true picture of how a a business is doing.
    Free Cash Flow is important for day-to-day operations. It’s also what Donald Trump and others like him have used for ages to squeeze money out of a business as they are destroying them.

  8. Posted by Ted Elliott on

    So how much does this new railway cost. The same as the southern route one? The southern route has less potential ecological damage than the notthern route. If the cost is the same then the economics of the railway is mute. The cost of building the south route is increased now gteatly because the camp at Milne inlet with ship loading facilities would be a najor expense to decomission and move thus adding greatly to the cost. Within the life span of this mine climate earming may likely be solved thus the argument about longer arctic shipping seadons being a benefit for this northern route will fall apart. Are they planning to bring cape suze ore carriers in yet especially if the double production? How would that work, perhaps offloading from smaller vessels to capesize in open waters of Eclipse Sound?

    • Posted by The Old Trapper on

      You’re saying that climate warming may be solved in the lifetime of the mine? Wow are you an optimist.
      Moot is the word you are looking for, not mute.

  9. Posted by John burch on

    It could make money if it had better management and stop purchasing useless equipment

  10. Posted by Ian Livermore on

    Baffinland, the Government of Nunavut, and the federal government in Ottawa need to look boldly at the big picture on the development of a railway link to Steensby Inlet. Such a rail line will enable year round shipments of iron ore from the mine, something that is no longer permissible from Milne Inlet due to legitimate environmental concerns regarding disturbing marine life in the area. If building a rail line to Steenby, the territorial and federal government’s should kick in money to build a branch line down to Iqaluit with spurs to larger communities along the way (say Clyde River) which would enable year round supply of food and other consumer goods to the residents of the territory, drastically reducing the cost of air transporting these items in during the winter months and otherwise only being able to rely on summer sealift. The cost savings in transport over the long run will offset the construction costs. It may also spur additional economic development in the territory, including tourism.

  11. Posted by Andrew Akerolik on

    Shows you how ignorant mines are, no concerns with Nunavutmiut, Set Iiba to protect themselves and regulators , manipulation at its best, even Gn let them do what they want, no concerns and as always blame the local hunters, southern people that have no idea about living in Nunavut, no idea about how Nunavut beneficiaries depend on wildlife, water and land . That don’t even know how to use or even understand IQ .

  12. Posted by The Old Trapper on

    If I’m running a business and I pay for a report that report had better say what I want it to say or else it is never going to be released. This is no different than those opposed to the project who will produce their own reports.
    What is needed is for both sides to agree on a neutral third party to do a report, provide them with all the information, from both sides, and let that third party draw their own conclusions.
    Right now we have “experts” on both sides saying contradictory things, which only ensures that there is animus on both sides. At some time both sides need to agree on the same set of facts.

Comments are closed.