IOC ramps up investment in Labrador operations

Strong market demand, addressing operating bottlenecks and improving winter performance were the key drivers behind the Iron Ore Co. of Canada’s (IOC) decision earlier this month to pump $60 million into expanding production at its operations in Labrador City, Nfld.

The expansion will boost production capacity to 18.4 million tonnes of concentrate a year by mid-2008 from 17 million tonnes. A feasibility study will assess further expansion to 21 million tonnes in later years.

The new investments shouldn’t come as a complete surprise. The iron ore industry is experiencing an unprecedented boom with world prices doubling for the commodity over the last five years and spiking in 2005.

Demand for steel in Asia is exploding, with China gobbling up one-third of global imports. Iron ore companies are making record profits and are upgrading production capacities to meet the demand surge.

“We expect China to keep the prices up,” says Michel Filion, IOC’s director of communications.

According to a report by Australia’s AME Mineral Economics, global iron ore consumption will grow strongly to more than 1.9 billion tonnes. Following record highs in 2005, demand growth will keep prices at elevated levels, although steel price corrections and new iron ore supply will allow most iron ore prices to ease in real terms, the research firm argues.

Since acquiring IOC in August 2000, Rio Tinto (rtp-n, rio-l), IOC’s major shareholder with a 58.72% stake, has been active in upgrading its Quebec and Labrador installations, as well as its load and haul fleet. Rio Tinto has invested heavily in its global iron ore business in recent years, equivalent to the iron ore division’s entire profit since 2003.

“IOC has added about 100 highly skilled jobs since the beginning of the current growth efforts in 2005 and expects to continue to hire as these expansion plans are implemented,” Rio Tinto Iron Ore chief executive Sam Walsh said in a statement.

The money will be used to buy new equipment for the mine and concentrator, including mine loading and haulage equipment, upgrades to the automatic train system, which delivers ore from the mine to the plants, and additional process spirals for the concentrator. The funds will also be used to purchase new railway cars for the company’s 416-km railroad that links the mine to the port in Sept-les, Que.

The work will begin immediately. IOC has already ordered an additional primary grinding mill required for the expansion. High demand for mining equipment means that ordering the mill early will help IOC avoid delays and long delivery times characteristic of the current market.

IOC is the largest manufacturer of iron ore pellets in Canada and its customer base covers North American, European and Asian steel producers.