O'Keeffe's Buying Opportunity in the Labrador Trough
Issue 108, December 2014
Champion’s flagship Fire Lake North deposit meanwhile sits several billion dollars from rail access, the market believes. In fact, O’Keeffe has three emerging rail options.
One, most visibly championed by O’Keeffe and his team, is to lock the region’s mining companies and Quebec’s government into negotiations over a multi-user railway from the Trough to the port of Sept-Iles, bypassing Rio Tinto’s Quebec North Shore Railway, the Trough’s only current route to port.
“What I’ve managed to do is get all the guys talking to each other,” O’Keeffe says. “We have to be a united force to be able to bring infrastructure into play and not be dependent on third parties, where you can be paying over-the-top rates.”
A second option, downplayed by O’Keeffe, is to gain access to ArcelorMittal’s Cartier Railway, which passes through Champion’s tenements and runs to Arcelor’s private Port Cartier. But whilst Rio Tinto’s railway runs through both Labrador and Quebec, compelling the company under Canadian railroad law to grant access to third parties, Cartier is confined to Quebec, holding it under Arcelor’s control.
ArcelorMittal avoids shared infrastructure, sources say, though O’Keeffe, who is said to be good friends with Aditya Mittal (Arcelor’s finance director and the son of its chairman), is better positioned to negotiate a rail deal than most.
The third option is a takeover of Bloom Lake. According to one source, it is the worst designed mine in Canada, but it boasts spare rail capacity and sits 60km from Champion’s deposit. Cliffs also owns land underlying the newly expanded port of Sept-Iles. There is “plenty of scope” for Champion taking assets off Cliffs, O’Keeffe says. “It’s a moving feast.”
There are two obstacles to any deal: Bloom Lake’s closure liabilities and its take-or-pay rail contracts with Rio Tinto, estimated at $15m to $35m each quarter. “I’d say if you rang [Rio] tomorrow and ask, they’d say they’re absolutely not negotiable,” O’Keeffe says. “But maybe there’s some ground to move there.”
Rio declined to comment, but may be conscious that Cliffs could dodge its liabilities altogether by seeking creditor relief for its Canadian holding company, whilst the alternative to Champion using the Bloom Lake line is construction of a new rail link, cutting future tonnage on the IOC line.
Closure liabilities are meanwhile largely determined by the government. In Quebec’s French-language press, there have been murmurings of an expropriation of some Cliffs assets and the government is believed to be riled by Cliffs’ willingness to cut loose, causing close to 1,000 job losses, or 10 per cent of the local population. “I’m walking away from Canada big time,” Goncalves has said.
O’Keeffe’s decision to move his office to Montreal and his willingness to galvanise mining companies around a multi-user rail agreement has won backing in Quebec’s capital. “The government’s very active on making things happen,” he says. “It’s in everyone’s best interests that there are operating mines.”
One quiet influence...
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