Canadian National Railway is taking a step towards building a potentially lucrative new transportation link for iron ore producers at the Quebec-Labrador border by proceeding with a feasibility study.
The country's largest railway said Friday it is working with several mining companies and the Caisse de depot pension fund on a study into the rail line and terminal handling facility, which analysts estimated could cost $5 billion.
The mining participants are Labrador Iron Mines Holdings Ltd., Cliffs Natural Resources Inc., a big multinational iron ore producer, as well as Canadian public mining companies New Millennium Iron and Alderon Iron Ore Corp.
CN said it will co-ordinate an application to the Canadian Environmental Assessment Agency, clearing the way for discussions with affected parties including First Nations.
"CN will work closely with mining companies in the group and the Caisse to determine the best design and right timing for the development of rail infrastructure to tap the significant iron ore production potential of the Labrador Trough in northern Quebec and Labrador," said Claude Mongeau, president and chief executive of the Montreal-based railway company.
Area a growing ore source
Rod Cooper, Labrador Iron Mines' president and chief operating officer, said in a separate statement that a new terminal handling facility at the Port of Sept-Iles would complement plans for a new dock at the port.
"We are excited to move ahead with these developments, as they represent important steps to enhance long-term rail and port access for LIM's iron ore," Cooper said.
The Quebec government's Plan Nord envisages CN and the Caisse developing a new 800 kilometre line from the port of Sept-Iles to the Labrador Mining Trough, a major growing source of iron ore.
Cameron Doerksen of National Bank Financial said the project won't likely be operational until 2017-2018 but could provide large revenues for CN. He estimated the railway could potentially generate $1.5 billion to $2 billion in annual revenues on top of its current total of nearly $10 billion.
"While this development is positive for CN and the potential of the project is enormous, much needs to still fall in place before it advances," he wrote in a report.
Doerksen added that he believes the mining companies have not yet made any volume commitments, which CN would need along with pricing assurances on long-term contracts, to proceed with the investment.