IOC to reactivate Sept-Iles pellet plant

Steel markets in North America and Europe are weakening as a result of cheaply produced Asian imports. However, Australian major North Limited, confident of a long-term recovery, has announced major capital expenditures for its subsidiary, Iron Ore Co. of Canada (IOC).

IOC’s assets include: an open-pit iron mine, concentrator and pellet plant in Labrador City, Nfld.; a deep-water port and idled pellet plant on the lower St. Lawrence River at Sept-Iles, Que.; and a 420-km rail line connecting the two towns.

The company, Canada’s largest producer of iron ore pellets, is in the second year of a program designed to boost production and reduce costs. By 2003, IOC’s capacity to produce high-quality pellets is expected to soar to 17 million tonnes per year, up from the 11 million tonnes delivered in 1997 and the record 12.2 million tonnes achieved in fiscal 1997-98.

In Labrador City, IOC has acquired 11 new locomotives, replaced a dry mill with a wet mill and commissioned a A$9-million flotation plant that reduces silica content in pellet feed, allowing the company to diversify into more sophisticated blast-furnace pellet applications and enter markets for direct-reduction iron pellets.

IOC recently announced it will spend $344 million on three major projects: reactivation of the idled pellet plant; expansion of hydroelectric capacity; and upgrading of mining equipment.

Mothballed since 1981, the pellet plant at Sept-Iles will be refurbished at a cost of $255 million, thereby increasing production capacity by 4.5 million tonnes of pellets annually. The refurbished plant is to be commissioned in mid-2001.

IOC’s plan to reactivate the plant is subject to the conclusion of a labor agreement with the United Steelworkers of America and a municipal-tax arrangement with the town of Sept-Iles.

Situated on the Ste. Marguerite River near Sept-Iles, IOC’s 18-MW hydroelectric power station will be boosted to 65-MW in order to meet added power demand from the revitalized pellet plant.

IOC has been active in Labrador City for more than 30 years. The company’s renewed vigor can be traced to the arrival in April 1997 of North Limited and its US$230-million purchase of a 59.3% stake in IOC from two American steelmakers: Bethlehem Steel and National Steel. North’s interest in IOC has since been reduced to 56.1%. The remaining owners are Japan’s Mitsubishi with 25%, the Labrador Iron Ore Royalty Income Fund (LIF.UN-T) with 12%, and Dofasco (DFS-T) with 6.9%.

Upon taking over the helm, North appointed John LeBoutillier as president of IOC. The company then relocated IOC’s sales agency and head office to Montreal and established a 5-year, US$120-million revolving line of credit provided by four banks.

Through its Canadian acquisition, North has positioned itself as a major player in the global iron-ore industry, with IOC’s mostly European and North American clientele complementing the established Asian clientele currently being served by North’s Robe River iron ore operations in Australia’s Pilbara region.

IOC has made healthy profits in recent years. In 1997, the company earned US$40.3 million on revenue of US$480 million from the sale of 16.7 million tonnes of iron ore products, compared with 1996 earnings of US$41.9 million on US$434 million in revenue from the sale of 14.7 million tonnes.

During North’s first quarter, ended Sept. 30, 1998, IOC mined 9.9 million tonnes of ore and produced 4.5 million tonnes of concentrate, up from the 9.6 million tonnes of ore and 4.3 million tonnes of concentrate recorded for the corresponding period last year.

The Labrador Iron Ore Royalty Income Fund receives a commission of 10 cents per tonne of iron ore sold and is paid a 7% royalty on the value of iron ore products sold. The fund warns that IOC is likely to reduce or eliminate dividends during the upcoming construction period in order to help finance the expansion.

IOC’s proven and probable reserves stand at 1.6 billion tonnes grading 38.6% iron, with measured and indicated resources pegged at 2 billion tonnes grading 38.8% iron.