Quebec rail plan stirs hope, concern in Canada’s iron belt – by Susan Taylor and Julie Gordon (Reuters – July 9, 2012)

http://in.reuters.com/

* Canadian National project backed by Quebec pension fund

* Railway needed for mine projects to proceed

* Junior miners fear transport costs may run too high

* Some miners discuss developing their own railway

* Project part of Quebec’s 25-yr plan to develop north

TORONTO, July 9 (Reuters) – Canada’s biggest railroad wants to build a C$5 billion ($4.8 billion) rail line to ship iron ore from isolated northern Quebec to port, a crucial link that could transform Canada into the world’s third-largest producer of steel’s main component.

Canadian National Railway Co’s ‘s 800-kilometer (500 mile) project, backed by Quebec’s public pension fund, is still years away from becoming a reality. Indeed, the 2017 projected start-up date looks ambitious, given the complexity of negotiations that lie ahead.

The junior miners needed to fill the rail cars want to keep a lid on transport costs, and some have even floated the idea of building their own rail line rather than signing on to CN’s plan.

The proposed railway also faces an intensive consultation process with governments and local native groups before work can begin. Assuming those talks are successful, construction over the rugged terrain would take three years to complete.

Stretching from the Port of Sept-Iles on the St. Lawrence River to north of Schefferville, on the border between Quebec and the province of Newfoundland and Labrador, the line will pass numerous mining projects in the Labrador Trough – a geological formation rich in iron ore.

There are already two rail lines in the region but their capacity is insufficient to meet demand from planned new mines in northern Quebec and Labrador.

The Quebec government says the region represents potential private investments of more than C$20 billion.

The privately funded rail project is just one piece of Quebec’s far-reaching Plan Nord, a 25-year plan that targets C$80 billion in public and private investments to develop a resource-rich area of 1.2 million square km, roughly the size of South Africa, with mining, renewable energy and infrastructure.

The whole plan is contentious for Quebec’s aboriginal Innu people, who last week blocked access to mines and development-stage projects in the Trough in protest against Plan Nord, which they say will damage the environment and their traditional way of life.

BIG POTENTIAL

For CN, the railroad could bring a huge boost to its annual revenue, said RBC Capital Markets analyst Walter Spracklin.

“If the contemplated mines do come through, this could be upwards of C$2 billion in annual revenue for Canadian National,” the transportation analyst said.

CN needs to ship at least 75 million to 80 million tonnes a year for the project to be feasible. But Spracklin said his conservative estimate of 125 million tonnes translates into rail revenue of C$2.2 billion. In 2011, CN recorded C$9 billion in revenue.

“It’s not a slam dunk,” Spracklin said, pointing to heavy capital requirements, uncertainty around the planned mining projects and the sheer remoteness of the location. “It’s not like there was this gem of an opportunity out there for anyone who wanted to pick it.”

CN’s partner in the plan is Caisse de depot et placement du Quebec, which manages the Quebec pension fund and will own a third of the railway.

“We’re a long-term investor and infrastructure are the type of projects where we like to invest,” said spokesman Maxime Chagnon. “We always want to have a partnership with businesses that are leaders in their sector.”

For the rest of this article, please go to the Reuters website: http://in.reuters.com/article/2012/07/09/canada-quebec-railway-idINL2E8I5A8K20120709

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