Developing Canada’s Mary River iron ore deposit, a rich reserve that could supply Europe for years, will test the boundaries of working in the Arctic and could herald the future of global mining.

It has taken 47 years, near-record iron ore prices and a bidding war to get the project to a point where developing a working mine seems like a legitimate possibility.

A takeover battle between ArcelorMittal and Nunavut Iron Ore ended last week with a combined bid to take joint control of Baffinland Iron Mines, whose board has endorsed the offer. That means Baffinland’s Mary River project could finally start production as early as 2013.

Even so, getting the ore out of the ground in a polar desert — considered Canada’s harshest environment — and loaded on to Europe-bound ships is a daunting task.

"You’ve got problems of remoteness, of weather, and of darkness," said Victor Pakalnis of the Robert M. Buchan Department of Mining at Queen’s University in Kingston, Ontario. "It’s a different environment than most of us are used to."

The project is located about 3,000 km (1,864 miles) due north of Toronto within the Arctic Circle, where in winter the average temperature dips below minus 28 degrees Celsius and near 24-hour darkness is the norm.

"There’s also the challenge of working with permafrost - permanently frozen ground," Pakalnis said.

As permafrost melts over the summer months, the soil becomes weak causing buildings and roads and other infrastructure to shift.

"You’ve got to have some insulating capacity," Pakalnis said. "The shifting can destroy roads and railway lines."

That shifting soil is likely a big concern for the project’s prospective owners, who may need to build the world’s northernmost railway to transport millions of tonnes of iron ore to European steel mills.

"Iron ore’s not like gold. A little bar of gold is worth a huge amount of money, you can just fly it out," said BMO Capital Market analyst Tony Robson. "But iron ore means lots of trains, lots of wagons and a really big port."

It can cost as much as US$5-million to build a kilometer of rail line, and that’s just for starters. Add to that hundreds of million of dollars for a port and the equipment to move the ore from rail cars to storage to the waiting ships.

Then there are the ships themselves, 10 Class 3 bulk carriers, each one as long a three NFL football fields and capable of navigating the icy waters of the Hudson Strait, between Baffin Island and northern Quebec, year round.

It all adds up to billions of dollars — a mind-boggling sum for a company valued at just $590 million in the latest bid from Nunavut and ArcelorMittal.

Frozen frontier

Nine distinct Mary River deposits are located in the barren northern extremities of Baffin Island, where in December and January blowing snow can obscure already limited visibility.

There is an unpaved road from the mine to the nearest human settlement 100 km away. Ships will bring in diesel fuel, mining equipment and other supplies during the summer months.

More importantly, the operation of the project will require workers — hundreds of them at the mine and port sites. That means the construction of an airstrip and housing for around 400 people. All in all, developing the project will cost as much as $4-billion.

The price and remote location have been enough to deter development for a half century. But with global resources dwindling and demand for steel soaring, miners are now turning to the world’s more far-flung regions for iron ore, the main ingredient in steel.

"Strategic resources for iron are important," said Haywood Securities analyst Geordie Mark. "Mary River’s resources are outstanding. It’s a large strategic resource."

Mary River stands out for its size and grade — the official resource is 854 million tonnes at an average grade of 66%. It has the potential to contain much more than that — between 2 and 4 billion tonnes of high-grade ore by some estimates. In fact, the mine could ship as much as 30 million tonnes a year.

By comparison, Consolidated Thompson’s Bloom Lake mine in Quebec, which is the prize in its $4.07-billion deal with Cliffs Natural Resources, has a grade of 29.4 percent on resources of 640 million tonnes.

With iron ore is selling above US$175 a tonne, the payout could be rich for whoever controls Mary River.

Of trucks and rails

With the costs of building a railway so high, Baffinland has completed a feasibility study that would use trucks instead of a railway. While cheaper to build, the trucking option would only allow for a fraction of the production using the rail option.

Trucking would cost about $760-million to develop, but the mine would only ship three million tonnes a year. By comparison, with the rail option outlined in 2008, the mine would ship 18 million tonnes a year, but cost billions to develop.

Analysts see the benefit of having a cheaper start-up option on the table, especially if the Baffinland board, which has backed the most recent combined bid, hopes to see more suitors enter the fray.

"If you need US$4-billion, it limits the number of parties that can come in and actually afford to build it," Mark said.

With the trucking option, "you can start a smaller operation at first, prove that you can produce the product, then ultimately you can upscale from there," he said.

Either way, experts say Mary River is just the beginning of what is bound to be a mining boom in the Great White North.

With climate change reducing the ice cap on the Arctic Ocean, resources can be transported to either Asia or Europe.

That means mining projects that may have been uneconomical in the past are now far more attractive for investors from Canada, and beyond.

"This is a new frontier that’s opening up," said Pakalnis of Queen’s University. "I think that we in Canada are blessed by an amazing treasure trove up there."