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This undated handout photo shows the Milne Inlet near North Baffin Island at the Mary River deposit area in Nunavut province.HO/Reuters

The federal government has approved construction of the massive Mary River iron ore project in Nunavut, a move that could jump-start development of the Canadian Arctic.

Once built, Mary River could triple the territory's annual economic growth rate and provide nearly $5-billion in taxes and royalties to the territory over its 21-year life.

"This is a game-changer for Nunavut and I think it's very exciting to be a witness and part of the process," Minister of Aboriginal Affairs and Northern Development, John Duncan, said in an interview Monday.

"We are going to end up with northern infrastructure, including a deep-water port, a road and a railway north of 60, which is pretty exciting," he said.

Construction on the project could begin as early as next July, and the mine could be in production as soon as 2017.

Mary River is owned and operated by Baffinland Iron Mines Corp., a joint venture between ArcelorMittal and Iron Ore Holdings LP that acquired the project together at a time when iron ore prices were at near-record highs.

Since then, prices for iron ore, the key ingredient in steel-making, have fallen dramatically as demand fell in China, the motor behind global commodities consumption for much of the past decade.

The project is still in the permitting stage, but for now its owners plan to spend some $4-billion to develop Mary River, even as some rivals postpone or cancel major spending plans in the face of the market slump.

"This signals us moving on through the environmental assessment phase and into the regulatory or permitting phase," said Gregory Missal, head of corporate affairs at Baffinland.

Late last month, Cliffs Natural Resources said it was temporarily suspending the expansion of its Bloom Lake mine in Canada's Labrador Trough. Brazil's Vale SA, the world's second-largest mining company, cut 2013 capital spending by 24 per cent following a drop in iron ore prices to a three-year low in September, Reuters reported Monday.

And ArcelorMittal is said to be exploring selling a stake in its Canadian iron ore business, valued at some $10-billion (U.S.), although Baffinland is not among the assets that might be sold.

At 18 million tonnes in annual production and with a direct sea route to transport the commodity, Mary River would be capable of supplying all of Europe's needs, potentially displacing dominant iron ore producers like BHP Billiton and Vale SA.

"We believe that Mary River could be one of the best undeveloped iron ore deposits in the world," said analyst Matthew Gibson at CIBC World Markets, noting also the high-grade nature of the Mary River deposit and potential for extremely low costs of production.

"I would add that despite Cliff's recently announced pullback in spending in the Labrador Trough, companies such as Wuhan Steel and Tata Steel continue to invest heavily in the region," he added, noting a final construction decision has yet to be made by ArcelorMittal on Mary River.

The project, located in mid- to northern Baffin Island, requires the construction of a 149-kilometre railway to a deep-water port that must also be built.

Ottawa approved the project based on the recommendation of the Nunavut Impact Review Board, which includes some 180 conditions that the company must meet to reduce its environmental impact.

However, it will also affect caribou migration, disturb walrus populations, and have an impact on seals, polar bears, beluga whales and other wildlife.

"It's been a long process but I do believe we've achieved a balance," Mr. Duncan said. "And I also view this as a rather benign project as mines go because the ore body requires no processing on site, other than crushing."