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Q&A: What Lies Ahead for the Labrador Trough

Posted on 2012-12-18, By A-Best Staff

Q&A: What Lies Ahead for the Labrador Trough

Last month, we took a look inside the development of the Labrador Trough, a 1.2-million-square-kilometer area spanning the border between Labrador and the Canadian province of Quebec. Right now, about 15 billion tonnes of iron ore are being explored in this region — enough to catapult the country from an also-ran to the world’s third-biggest producer.

As a follow-up to that article, we caught up with Wojtek Nowak, Research Analyst with Fraser Mackenzie, to take a closer look at the Trough’s future and to spotlight some potential profit opportunities for astute investors.

IIN: What are the major factors you see driving the development of the Labrador Trough?

Wojtek Nowak: One of the biggest macroeconomic factors is the rapid industrialization of China and India, which is pushing up steel production [iron ore is a key element of steelmaking]. China, which is the biggest driver, is also looking to get away from the big three major mining companies — Vale (NYSE:VALE), BHP Billiton (NYSE:BHP,ASX:BHP,LSE:BLT) and Rio Tinto (NYSE:RIO,ASX:RIO,LSE:RIO) — and control its own assets. The Labrador Trough is a good fit. Brazil and Australia are dominated by the big three, and Western Africa has vast reserves, but also significant political risk.

The Trough, on the other hand, is already established. There is production happening there now — foreign mining companies are currently involved, and there is a lot of management and labor skill. There is also significant infrastructure in place, with the potential to add more.

China’s economy has slowed, but the longer-term trend toward urbanization is still there. The country’s use of steel per capita, for example, still lags behind that of developed countries, so there is a gap to be filled.

IIN: So much of the Labrador Trough’s development depends on getting the infrastructure right. How do you feel that’s progressing?

WN: There is sufficient infrastructure there now for developers to proceed with their initial plans. Particularly in the southern part of the Trough, there is rail with enough capacity for now, and there will be a port down the road [at Sept-Îles, scheduled to open in March 2014], so I don’t see a problem with shipping access.

Over the longer term, though, there will need to be more rail to accommodate everyone’s expansion plans. Developers in the more remote section of the Trough, north of Schefferville, are especially under-served.

Of course, the third pillar of all this is power. The Quebec-based projects have adequate electricity supplies, while those in Labrador are more constrained. The proposed hydroelectric project at Muskrat Falls will help, but you still have to sort out the transmission grid.

IIN: The initiatives outlined in the Quebec government’s Plan Nord are a key piece of the infrastructure puzzle. What’s your take on the election in the province, and what do you think will happen if the Parti Québécois, which has voiced concerns about Plan Nord, wins?

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