Economic growth continues to put pressure on mining and metals companies to increase supply and develop new or existing mineral deposits. But new deposits are increasingly found in hard-to-reach places that lack infrastructure, like Northern Quebec. This vast region represents 750,000 square kilometres of untouched land. That presents a big challenge for miners suffering from high costs and capital constraints today. The question of how to fund the cost of infrastructure development is taking centre stage. As projects move toward production, and with capital sources currently scarce, companies are re-examining their infrastructure funding solutions.
Challenges in Northern Quebec depend on the size and location of projects. Several of the smaller projects in the Labrador Trough and in the Abitibi-Temiscamingue region have access to existing rail and road infrastructure, as well as to electricity supply. That’s compared to larger projects in the Labrador Trough — the 1,600 km long iron ore-rich region straddling western Labrador and northeastern Quebec — that require additional infrastructure. These projects aren’t large enough, however, to justify carrying the full cost alone — an approach taken in the past when both the Quebec Cartier and the Quebec North Shore and Labrador (QNSL) railways were built to support individual projects. The outcome of Rio Tinto’s current sale of the QNSL as part of a broader transaction will be a factor in how much railway capacity is ultimately available to others.
The Port of Sept-Iles, an independent federally-chartered facility, is nearing completion of its docks and maritime capacity expansion, prompting big questions around the long-term capacity of the main north-south railway axis as well as of the availability of storage and handling terminals adjacent to the port. Answering these questions is increasingly important with several Labrador Trough projects ramping up to full production within the next 18 to 24 months. But to address concerns around terminal bottlenecks the industry must address the infrastructure financing gap.
Though governments managing the continued effects of economic uncertainty don’t have the cash on-hand to fund extensive infrastructure projects there’s still the potential for modest credit support or more direct investment through government-related entities. Governments can also clarify processes so that mining and metals companies can advance their infrastructure projects. This is especially important as much of the infrastructure development involves use of Crown land. While governments’ role in addressing the current funding gap may be unclear, the benefits of investing in infrastructure are not. Not only do these developments support local industry, they can be associated with investment in community education and health care facilities.
There’s also work to be done when it comes to energy supply in Quebec. Juniors developing new mines appear to be faced with the prospect of infrastructure delivered at full incremental costs with little opportunity for cost containment. Historically and by law, the Quebec provincial government has played a major role in setting rates for industrial customers, and in guiding power investment priorities. This is an area where government could clarify its policies or risk having companies rely on diesel power in the context of available electric capacity.
Approaches exist for companies to address their infrastructure financing challenges in advance for when market conditions improve. Those whose projects are nearing production must craft deals to access the available third-party infrastructure financing by coming to a collaborative arrangement with their regional peers and off-take customers — and fast. Major infrastructure projects today are only feasible if the funding and risks are shared among users. Government too should determine how to support this sector before investment seeks other markets. It’s about finding innovative solutions and having a willingness to share control. Companies that wait for government decisions and dollars to fund their projects may risk losing out to competitors in Quebec and elsewhere.
*Daniel Roth is a partner at EY and a leader of the firm’s Infrastructure Advisory Services. He is based in Montreal.