Chinese steel giant invests heavily in Quebec iron ore property

Toronto to Shanghai is a long haul, even in the age of intercontinental air travel, and Allen Palmiere can attest to that because he’s made the 23-hour trip more than 20 times since taking over Adriana Resources Inc. of Toronto in June...






Toronto to Shanghai is a long haul, even in the age of intercontinental air travel, and Allen Palmiere can attest to that because he’s made the 23-hour trip more than 20 times since taking over Adriana Resources Inc. of Toronto in June 2009.

As president and chief executive officer of Adriana, Palmiere, a 59-year-old industry veteran, has made the exhausting journey to meet with Deng Qilin, president and chairman of the board of Wuhan Iron & Steel (Group) Corp (WISCO), a state-owned company that employs 140,000 people.

And the reason behind Palmiere’s many visits was quite clear: to establish a joint venture partnership with WISCO on its Lac Otelnuk iron ore project in northern Quebec.

"It has the potential to be one of the largest deposits in the world," says Palmiere. "If we’re right in our estimates, the mine life will be in excess of 100 years."

Drilling to date has yielded a resource estimated to be in the neighbourhood of 6.45 billion tonnes. Small wonder, then, that the Chinese steel-making giant came knocking on Adriana’s door, coincidentally a few weeks after Palmiere arrived following his departure from the top job at HudBay Minerals.

WISCO produces 36 million tonnes of steel annually — which makes it one of China’s big three — but it is planning to boost production to 60 million tonnes per year by 2015.

The company needs new sources of iron ore and it possesses the size and stature necessary to fund or finance a project on the scale of Lac Otelnuk, which will cost an estimated $12.9 billion.

Still, it took two-and-a-half years of negotiation, and all those trips to China, before Palmiere and Deng were able to affix their signatures in mid-December last year to a joint venture agreement that gives WISCO a 60-per cent share of the project and Adriana the balance.

"It took a long time for them to get serious," he says. "But it is one of the largest investments in mining that a Chinese, state-owned company has ever made."

The property is located in an extension of the long-established Labrador Trough iron ore district, but on the Quebec side of the border. More specifically, it’s about 170 kilometres northwest of the mining town of Schefferville and some 250 kilometres south of the first-nations community of Kuujjuaq. It was first explored in the late 1970s by a Nevada-based junior miner that has long since disappeared.

"They only drilled holes 30 metres deep and the price of iron ore was so low they didn’t come up with anything that was close to economical," says Palmiere.

Adriana acquired 129 contiguous claims from a tiny, prospector-owned company called Bedford Resources several years before Palmiere arrived but mothballed it in favour of a project in Brazil. He decided they should concentrate their efforts on Lac Otelnuk.

Adriana drilled much deeper than the Nevada company had and discovered an ore body that started at or near surface and was 100 metres thick on average. Encouraged by those results, Adriana began staking more land and now holds 34,823 hectares.

The company’s published resource estimates (6.45 billion tonnes) are based on results obtained from drilling a zone that is nine kilometres long by two wide. Last summer, Adriana explored two different locations, one of them 14 kilometres to the north and a second four kilometres to the south.

In early March, the company was awaiting a new resource calculation, based on that program, and it still had another 15 kilometres of strike length to drill.

"We have a very, very large deposit, but we need to build a very large mine to make this work," Palmiere says. "The only way you can justify the infrastructure is to amortize it over large-scale production."

WISCO is one of the few companies in the world big enough to finance such a project. The Adriana-WISCO joint venture company, Lac Otelnuk Mining, is expected to employ as many as 3,000 people.

The open pit mining operation is projected to produce 50 million tonnes annually and the partners hope to have it up and running by the end of 2017. Adriana released a preliminary economic analysis in April 2011 and now has a combined pre-feasibility and feasibility study underway. It should be complete by the spring of 2013, which ideally allows for environmental permitting by year end 2013 and a start on construction in early 2014.

The project requires construction of a mine, a camp for the workers, a power line likely run from Schefferville, a concentrator, a pellet plant, a railway and port facilities.

Lac Otelnuk Mining will be extracting taconite ore, crushing it to the consistency of a powder resembling flour, removing the magnetite through a process of magnetic separation and mixing it with bentonite.

From there it will go into a furnace to produce the final product — high-grade pellets containing about 67.5 per cent iron ore.

Palmiere says Adriana has more or less ruled out building a rail line north to Kuujjuaq on Ungava Bay because it is frozen for a good part of the year. That means the company will have to construct a rail line south some 850 kilometres to Sept-Iles. It will have to purchase (at a cost of $2.6 billion) 98 locomotives and 7,200 rail cars in order to move the projected annual production of 50 million tonnes.

As for port facilities, the company may be able to enter into a partnership agreement with the Port Authority of Sept-Iles, which in mid-February announced a $220-million expansion aimed largely at serving iron ore producers in the Labrador Trough.

The project involves construction of new terminal facilities and a 450-metre multi-use dock with two berths.

At some point in the future, a permanent community could arise around the Lac Otelnuk project; it will be big enough to support a town, Palmiere says, but that is not part of the planning at the moment. He envisions the use of charter aircraft to pick up workers, perhaps as many as 1,000 a week, from Montreal, Quebec City, Sept-Iles and other locales and flying them in for two- to three-week stints at the mine.

It may be the end of the decade before the mine is operating at capacity, but Palmiere has no doubt it will happen.

"At 50 million tonnes annually we’ll be the largest producer in the Labrador Trough by far," he says. "This project has no comparables in Canadian mine development. It’s one of the biggest in the world."


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