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The Wabush Mines stands in the distance behind homes in Wabush, Labrador. (FRED LUM/THE GLOBE AND MAIL)
The Wabush Mines stands in the distance behind homes in Wabush, Labrador. (FRED LUM/THE GLOBE AND MAIL)

Wabush woes: Labrador mining town reels from a China slowdown Add to ...

Ron Barron has spent 30 years working in the Wabush mine, one of three generations of Barrons who have toiled in the open pits in what western Labrador bills as the iron ore capital of Canada.

The family’s roots run deep here. Mr. Barron’s father was one of Wabush‘s first settlers, who not only got a job in the mine when it opened in the 1960s but also helped organize a union. Five of Mr. Barron’s brothers have worked in the same pits along with his son and nephew.

But now Mr. Barron’s life has been upended along with the rest of city. The Wabush mine, once the cornerstone of this community, is shutting down along with another iron ore mine called Bloom Lake in neighbouring Quebec. More than 1,000 miners will be out of work, not to mention a slew of other job losses from businesses that service the industry. It’s a crippling blow in an area with a population of about 9,000.

“Oh my god, everybody loses. All the organizations, the schools, everything loses. Everything will suffer because of it,” said Mr. Barron, who will be officially out of a job by mid-December. “We have had shutdowns and layoffs before, but this is different. The mine is closing.”

The reason for the closings is simple: The price of iron ore, a key ingredient in steel, has been in freefall, falling 60 per cent in three years. Where the resource once traded as high as $190 (U.S.) a tonne in 2011, it is now below $70. The deterioration is due to two factors: less demand from China and an oversupply of iron ore and coking coal, which is also used to make steel.

As a result, producers around the world are slashing costs, halting operations and laying off workers in droves. What’s happening in Wabush is taking place in many other Canadian communities as well as resource-rich countries such as Australia.

The fall out can be seen in places like Sept-Îles, Que., where an iron ore pellet plant was shut down, and in Tumbler Ridge, B.C., where a number of nearby coking coal operations have been suspended and two mines closed. “When the commodity price goes down and mines close, it is devastating,” said Darwin Wren, Tumbler Ridge’s mayor. In Queensland, Australia, thousands of mining jobs have been lost as coking coal prices fall by more than 60 per cent since 2011.

But it is here in Wabush and Labrador City – known as Labrador West – where the real impact can be seen. These communities were built around two giant iron ore mines nestled in the surrounding snowy hills. It’s here where iron ore is so critical to everyday life that just about anyone can quote you the price of the mineral on any given day.

“Most of our residents follow the price. There is an understanding of how dependent we are,” said Labrador City’s mayor, Karen Oldford.

The rise and fall of iron ore

For a long time, iron ore wasn’t like most other minerals. It didn’t have wild price fluctuations because global steel production remained fairly constant. That changed in the early 2000s when China’s economy surged and the country gobbled up vast amounts of stainless steel to build everything from railways and power grids to office towers and apartments.

The increased demand sent iron ore prices soaring, up from $30 a tonne to $190 in seven years. Companies invested billions of dollars to boost production, existing mines expanded and employment levels took off. And most took on large amounts of debt to snap up mining assets, convinced China’s growth was unstoppable.

In Canada, the big attraction was a 1,600-kilometre-long iron ore-rich mineral belt called the Labrador Trough that straddles the Quebec and Labrador border. That deposit, and another in the Far North, made Canada a player in the global iron ore market. Soon, bidding wars broke out for Canadian mines. Cleveland-based Cliffs Natural Resources Inc. bought out its partners in the Wabush mine in 2010 for $88-million and then spent nearly $5-billion a year later for the Bloom Lake mine. The world’s largest iron ore producers – Rio Tinto, BHP Billiton, Vale SA and Fortescue Metals Group – spent billions expanding and building their mines.

But China’s double-digit growth didn’t last and when the country’s economy began to cool, steel demand fell along with the price of iron ore. At the same time, the iron ore giants kept pumping more iron ore into the market, eager to cash in on their more than $100-billion-plus investments. With their costs per tonne below $30, these heavyweights were, and still are, able to rake in huge profits. But over the past four years, they have added 300 million tonnes to an already saturated market, leaving higher-cost producers scrambling.

“Any recovery in prices will have to come from either a recovery in demand in China or from an acceleration in the closure rate of high-cost producers,” Paul Gait, an analyst with Sanford C. Bernstein in London, said in a recent research note.

The iron ore market has a surplus of about 70 million to 80 million tonnes this year, according to CRU Group, a global commodities research firm. Next year, CRU expects a surplus to narrow somewhat to 50 million to 60 million tonnes, but that’s still more than enough to meet global demand. Metallurgical coal, also used in the steel-making process, is suffering the same fate with a surplus of about six million to eight million tonnes.

Since the summer, the price of iron ore has slipped even further. A barrage of weak economic data from China showed a slowdown in its manufacturing and property market – two sectors that consume huge amounts of stainless steel. In addition, China’s steel exports nearly doubled since last year, underscoring the fact that the country simply needs less metal.

“There is just not a whole lot of demand growth,” said Jessica Fung, commodity strategist with BMO Nesbitt Burns. “The steel sector is relatively mature and China has gone through its double-digit growth.”

At first, companies took precautionary measures to deal with the downturn. Some like Baffinland Iron Mines Corp. scaled back its Mary River iron ore project in Nunavut while others made small cuts to production. Now companies are suspending operations and shutting down mines.

“It is inevitable that some will have to shut down. Who shuts down is the real question,” said Serafino Capoferri, a consultant with CRU Group.

Fort McMurray East

People in Wabush know the rise and fall of iron ore all too well.

This community was carved out of the bush 50 years ago, shortly after exploration of the area in the 1950s revealed a giant deposit. Soon the IOC mine was opened, then the Wabush mine opened in 1965.

Like many one-company towns, there have been highs and lows. But the emergence of China as an economic powerhouse triggered a wave of unprecedented expansion. The Bloom Lake mine opened in 2010. The IOC mine, now controlled by Rio Tinto Group, expanded. Wabush was set to crank out even more ore and another company, Alderon Iron Ore Corp., had plans to build a new mine. Exploration of the Trough continued with hopes of even more mining.

At one point, Labrador West came to be known as Fort McMurray East, taking a cue from the Alberta boom town. Local hotels were perpetually booked and grocery stores could barely keep their shelves stocked.

As workers and opportunity seekers flooded in, housing got scarce. Duplexes that cost $25,000 in 2000 were going for more than $500,000. Home rental rates jumped from $1,500 a month to $6,000. Even one room in a home cost $1,000 a month to rent and landlords routinely pushed out long-time tenants to make room for higher-paying contractors.

“When I moved here, I couldn’t buy a house or rent anything. My company put me up for six months. Then I bounced around to cabins and basements,” said John Skilling, who moved to the area from Nova Scotia during the boom years.

The community grew so fast, local officials travelled to Alberta to get tips from people in Fort McMurray on how to cope with rapid growth.

“It was crazy,” said Mr. Barron, who served as Wabush’s mayor during the boom time.

Mine closings

The boom time is over and the closing of the Wabush and Bloom Lake mines is hitting the community hard.

More than 400 residents lost their jobs when Cliffs suspended operations in Wabush last February. About 500 workers will go at Bloom Lake. Although some miners were able to find work at IOC, others had to look outside of Labrador West and head to the Alberta’s oil sands and the Muskrat Falls energy project in eastern Labrador. Many are still looking.

A third of the Wabush city operating budget comes from mine taxes. Those funds are used for basic city functions, such as shovelling the roads and hauling away the garbage.

“Things are very tough. Every day is a struggle. We want to get everyone back to work. We are looking for new opportunities,” said Wabush’s mayor Colin Vardy.

The once frantic housing market has softened with vacancy rates climbing. Landlords are cutting rent to entice tenants to stay and the average home price has dropped about 15 per cent since the boom times. A three-bedroom house that went for $450,000 in the heyday can now be bought for just under $400,000. But most aren’t selling, meaning prices are likely to fall farther. Residents talk about how families took on hefty mortgages to buy half-a-million-dollar homes and they will now be stuck with a property worth less than what is owed.

Along one quiet road in Wabush with a view of a lake and mountains, about 15 per cent of the houses had for sale signs on their lawn. They were new houses built during the boom years and some have been on the market for a year.

“A lot of people are holding on to wait and see,” said Lois Milley, a realtor with Sutton whose “For Sale” signs can be seen all over Labrador West. Ms. Milley said she hasn’t seen any foreclosures yet.

Residents are not fleeing as they did during the recession in the 1980s. But the future is uncertain.

In addition to the closing of the Wabush and Bloom Lake mines, Cliffs had already stopped production at its iron ore pellet plant on Quebec’s north shore earlier this year. Labrador Iron Mines Holdings Ltd. had to suspend all operations at its mine and development projects.

The fallout has spread across the area, with many local businesses, reliant on miners’ spending, laying off staff. Even the lineups outside a Tim Hortons drive-through are shorter and there’s no problem getting a table at the local Pizza Delight.

Mike Scott, who owns two mine-servicing businesses in Wabush, said the city has changed over the past six to seven months. “The phones are quieter, the shop is quieter, the town is quieter,” Mr. Scott said. “The attitude, I guess, is somewhat subdued, like people died or something. You know what I mean? The air is heavy.”

Mr. Scott used to own one store in New Brunswick, which provided repair services to mines. In 2010, business was so good he set up two industrial shops in Wabush. One of his workshops has a crane that can lift 100 tonnes to repair the giant shovels and equipment used to move the ore.

His business has changed for better and for worse. Contractors have left, freeing up some of the work for shops like his. At the same time, there are fewer mines to work on. “Not only did the mines invest. But a lot of people like ourselves invested. We put up a building looking at the future,” said Mr. Scott, who grew up in New Brunswick and commutes between the two provinces. “Now you have all these players, and we are one of them, still picking at the same plate. But the plate just got smaller.”

Cost problems

For companies that invested heavily in iron ore projects, the reality is grim. Labrador Iron Mines suspended operations at its small mine in the Trough when the mineral was trading at around $90 a tonne. Now the company is racing to secure additional funding to stay afloat.

“It is very difficult competition for all Canadian iron ore companies,” said Labrador Iron’s chief executive officer John Kearney. “Companies need much lower operating costs.”

Labrador Iron is trying to renegotiate contracts with its suppliers and restructure its operations to get costs below $70 a tonne.

The Wabush mine’s cash costs were $137 a tonne earlier in the year. Bloom Lake’s costs were $94 a tonne. Those mines made money when iron ore prices were above $150 tonne, but not any more with prices dropping to around $70.

Initially, the community pinned its hopes on the Wabush mine being sold and reopened under new owners. But a proposed deal fell apart in October and Cliffs is getting the mine ready to close.

Mr. Barron and others say the government should step in and provide some assistance. The province’s Minister of Natural Resources, Derrick Dalley, said his government was “prepared to work with any interested company to ensure a smooth and expedient transition back to production, provided that the company has a viable plan for the mine and is committed to operating within our regulatory framework.”

“We know this is a difficult time for the workers of the mine and their families, as well as residents in the Labrador West area,” he added.

Alderon Iron Ore Corp., which is trying to raise more than $1-billion for its iron ore project in the Trough, is considering buying the mine. But it is only interested in the infrastructure and the land and it would not resume iron ore production.

The company’s own iron ore deposit is close to the Wabush mine, IOC and Bloom Lake. If Alderon obtained the necessary funding to start construction, it would at least help provide some jobs to those who were laid off from the Wabush mine. Alderon has no operations at this time.

But with the price of iron ore steadily dropping, Alderon has had a hard time attracting investors. “It is undoubtedly difficult to raise funding in this climate,” said Tayfun Eldem, the company’s CEO.

Long-time residents of Labrador West remember the 1980s when the recession slashed demand for stainless steel products. IOC and the Wabush mine cut production and laid off about 2,000 workers. Hundreds of houses were abandoned.

“This is not something we haven’t seen before in Labrador West. We understand we live in a mining community and we are very much subject to the world markets,” said Labrador City’s mayor Ms. Oldford, whose husband, son and father-in-law worked at the mine.

“One of the biggest things we started to talk about, even before the downturn started to happen, was diversification … So that’s where we are focused now,” she said.

Labrador West has not exactly diversified since the 1980s. IOC, Wabush and Bloom Lake are still the area’s main employers. The other businesses exist largely to service the mining industry.

The future for Labrador West

Ms. Oldford still has big dreams and would like to turn the area into a manufacturing hub. The mayor and city councillors, all volunteers, have dusted off an old report from the 1970s that explored developing other industries.

In an interview, she mused about someone developing a steel plant or making ball bearings for mines or creating some kind of research centre. She recently hosted a Taiwanese delegation and pointed out that Taiwan has no natural resources and has to import everything it needs.

“We have access to rail, we have access to a port. We have an industrial power rate that is attractive. We have a highly skilled work force,” she said.

A round wooden plaque inscribed with the words “Iron Ore Capital” hangs in the mayor’s chamber. That slogan seems somewhat faded now with two mines closing and the industry on the ropes globally.

Many residents like Bob Garland would like to stay. He loves the land, the winters and blue skies. He moved to Labrador two years ago to work at H & H Enterprises Ltd., a local business that does work for the mining industry, including crushing rocks. He was a human resources manager and was inundated with résumés when the Wabush mine suspended operations this year. Now he too is looking for work.

“Will there be anything else for me in Labrador West? Will I have to go to another part of Labrador or go back to another part of Canada?” he said. “There will be some of us that stay to fight another day.”

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