Tuesday, February 11, 2014

OPERATING COSTS SEND SKULLY MINE OVER THE CLIFF


The future of the Skully Iron Ore Mine in Wabush has been in doubt for a while now but today's announcement reverberated right to the Confederation Building.



During the recent economic downturn in 2008 Cliff Natural Resources announced that they were cutting production and getting rid of almost half of their unionized workers.  The company also demanded concessions on overtime and contractual work.



In 2012, the company idled its pellet plant citing high production costs and lower prices.



The writing was on the wall.



A decline in markets or increased costs would spell disaster for the Wabush operation.  The Cleveland based company has been fairly honest about the precarious position of the Wabush Operation – the focus was on economics and newer mines and concentrators that offer better returns.



Today’s surprise announcement is actually not much of a surprise. Despite significant investments last year, softer than forecast markets, transportation and high operating costs at the 48 year old mine has forced the company over the cliff.



They are idling the mine as of the end of the first quarter of this year!



"Over the past three years we have seen pricing drop and Wabush Mine's costs escalate all while we have made significant capital investments into the operation.  This is a regrettable but necessary decision”, stated a company press release.



The question is, has the government been following the writing on the wall? Have they discussed ways to reduce costs through cheaper energy and transportation incentives to make the mine viable? Or did they do what they did in Stephenville and Grand Falls – ignored the world market realities and called the companies bluff.

The mine closure - idling - will mean a huge drop in royalties and income tax for Provincial coffers putting even more pressure on the bloated government to reduce expenditures.



Lets face it, Labrador West offers a superior iron ore than mines in Australia and Brazil. The ore contain extremely low levels of impurities such as alumina and phosphorous which is in great demand by steelmakers around the world.

We are supposed to be an energy warehouse but even with superior grades of ore an international company can not remain competitive.  Something is not right here?

What does this mean for the future of the other Iron Ore projects under development in the region?



In the memorable words of Dwight Eisenhower: Things are more the way they were than they have ever been before.  Except that there are less opportunities outside the oil sector in the province than there was before 2003.



We may have resources but they are just rocks in the ground if we cannot compete in the markets.

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