Plans to build Baffin Island's massive Mary River iron ore project, a key driver of Canada's northern development, have been scaled back to a much smaller proposal as its owners fall victim to global financial tumult.
In a letter to Nunavut authorities, operator Baffinland Iron Mines Corp. said it is replacing a mine plan to produce 18 million tonnes a year of iron ore with one that will produce just 3.5 million tonnes. A planned railway for the project will be deferred, and the iron ore will instead be trucked to an existing small port instead of a building a new one.
The original project had a development cost of about $4-billion, but the scaled-down plan would keep spending to an estimated $740-million.
"In the current global financial environment, the large development cost for the Mary River Project is difficult to finance," said Baffinland, a joint venture between global steel giant ArcelorMittal and Iron Ore Holdings LP, its private equity-backed partner, in a letter to the Nunavut Impact Review Board. "The same effect is being felt by many major projects around the world."
Mary River is the latest casualty of slowing commodities demand and soaring operating costs in the resources sector that have already caused companies to delay multibillion-dollar mining projects in recent months. Even the largest miners have been hit by slower growth in China, and economic woes in Europe and the United States.
Teck Resources Ltd., Canada's largest diversified miner, said in November it deferred $1.5-billion in capital spending over the next year amid rising costs and an unpredictable outlook for the economy.
Luxembourg-based ArcelorMittal, the world's largest steel maker, is struggling with high debt and weak steel prices and has been forced to put key assets up for sale. Its profits skewered in recent quarters, the company cut its ownership of Mary River in December to 50 per cent from 70 per cent, ceding the stake to its partner.
Baffinland could not be reached for comment on Friday, but said in its letter to the NIRB that its board decided just before Christmas to scale back the project, opting for a phased approach that required less upfront capital and that would generate revenue sooner.
"Baffinland remains committed to developing the Mary River project in the near term despite the current global financial challenges, and believe that this early revenue phase will allow the project to generate benefits to Nunavut in the near term," the partners wrote in a letter to the NIRB, a government body responsible for assessing the impact of projects on Nunavut.
Mary River received federal government approval in December and construction was to begin as early as July. Production was slated for 2017. It's not clear when production could start under the revamped mine strategy.