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Canada is a two-bit player when it comes to iron ore production, but that could be in for a dramatic change because of two words: Labrador Trough.
The trough is a little known geographical feature straddling Quebec and Labrador that is causing quite a stir in mining circles. The more than 1,000-kilometre-long, sausage-shaped landform hosts numerous iron ore deposits of a size and grade that suggest they will eventually lead to new mines. Investors should be taking notice because the trough’s ferrous riches, only moderately exploited to date, appear to be on the cusp of rapid development.
“The Labrador Trough has the potential to be a major global area” for iron ore production, contends Jackie Przybylowski, an analyst at Desjardins Securities Inc. who has just issued a 64-page report devoted to the investment prospects of companies active in the region. The firm initiated coverage on five of the area’s pure play iron ore prospects.
Raymond James, another dealer, has also been advancing the same theme with its clients. “In our view, the Labrador Trough is underutilized and has the potential to be a major iron district,” the firm said last week in a note.
The drive for new mines is being spurred by the economic fundamentals of buoyant ore prices and demand growth in Asia for steel, which is derived from iron ore. But the prospects for development are receiving an additional helping hand from both the Quebec and federal governments.
Quebec announced in its recent budget three measures that could help jump-start more mining in the trough. It said the Caisse de dépôt et placement du Québec and Canadian National Railway Co. are planning a feasibility study for a second rail line into the region. Hydro-Québec has also been asked to study extending the provincial transmission grid, which would benefit new producers. The province has also earmarked up to $1-billion for investments in new mining and petroleum projects. In addition, Ottawa has announced it will invest up to $55-million to fund construction of a deepwater dock at Sept- Îles, Que., that will be used for shipping ore.
There are a number of junior Canadian stock plays offering exposure to the trough. Ms. Przybylowski deems the best of the bunch to be Labrador Iron Mines, (LIM-T4.38-0.21-4.58%) the newest company to become a producer and a possible takeover target. The most logical acquirer is Rio Tinto (RIO-N52.58-1.17-2.18%) through its Iron Ore Co. of Canada subsidiary, which has operations near Labrador’s deposits.
For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/globe-investor/investment-ideas/labrador-trough-a-promising-play-in-iron-ore/article2383332/