Firms clash on rights to build railway in Quebec

MONTREAL . A clash over infrastructure assets is shaping up in northern Quebec, pitting the interests of two corporate titans against a group of junior miners.

At stake is the transport of as much as 200 million tonnes of iron ore by rail, an annual moving bill that could top $1-billion, and the long-term ownership and usage rights of a key transportation link.

Canadian National Railway Co. and pension fund manager Caisse de dépôt et placement du Québec confirmed this week they are working on an estimated $5billion project to build a new 800-kilometre railway stretching from Sept-Îles north past Shefferville into the Labrador Mining Trough. The partners need firm transport commitments from mining companies before they can proceed.

But miners active in the region have been sketching out their own plan for a railway for more than two years, with the objective of controlling their own transport costs. They are worried that paying CN to move their iron ore powder or pellets will prove too expensive.

"The industry is the final payer. And without the payer committing, I think a multibillion project will have some difficulty of even getting started," said Sandy Chim, chief executive of Century Mines Corp., one of three miners that have been actively talking with a view to starting their own railway to move their eventual output.

"We don't want to be caught in a situation where, after a multi-billion investment [to mine the mineral], we cannot ship out goods. Way before production happens we have to work on the logistics."

Century, Canada's largest holder of iron ore land claims, has interests in several properties in Quebec and Labrador. After raising funds from China-based Wuhan Iron and Steel as well as MinMetals Exploration Ltd., the company has secured access to the Chinese market and is targeting initial production in three years for its smaller mines.

Century says it has been in talks with Adriana Resources Inc. and Champion Minerals Inc. on the possibility of a building the multi-user railway owned by the miners. They would hire a separate company to operate it. No formal pact between the companies exists, Mr. Chim said. "But our common interest is very agreeable that we would like to do that."

The Quebec government took the industry by surprise this week by announcing the CN-Caisse railway project in its budget. The province is counting on mining royalties to help drive revenues. Last year, it launched a major development plan for its northern territory called Plan Nord.

However, Quebec has repeatedly stated there will be only one additional railway built going north. The province would lease its land to accommodate the railway path. First Nations communities also have to give their blessing.

The question then becomes, who will build and own the infrastructure and who will operate it?

"If the infrastructure is owned by a class 1 railway like CN then it's a different equation in terms of costs and the risks are that the costs may go higher," said David Blair, a lawyer with Heenan Blaikie in Quebec City acting for Century.

Mr. Chim said he is open to speaking with CN about its plan, without jeopardizing his relationship with the other developer-exploration companies. "I'm not ruling anything out," he said. "I'm willing to work with anybody to find a common solution."

nvanpraet@nationalpost.com

http://www.financialpost.com/todays-paper/Firms+clash+rights+build+railway+Quebec/6346323/story.html

http://www.republicofmining.com/2012/03/23/firms-clash-on-rights-to-build-railway-in-quebec-for-iron-ore-miners-by-nicolas-van-praet-national-post-march-23-2012/