Iron ore on the cusp in Canada

With China's helping hand, Canada is poised to be a major player in iron ore for the first time. Chinese money is pouring into greenfield iron ore projects in the Labrador Trough, paving the way for a huge increase in Canadian production and a transformation of the local economies in Quebec and Newfoundland and Labrador.

"I wouldn't be surprised to see Canada at 120 or 140 million tonnes a year of seaborne production down the road," says Allen Palmiere, chief executive of Adriana Resources Inc., which just struck a partnership with a Chinese steel producer.

While Canada is among the world leaders in production of most major resources — oil, copper, gold and potash among them -it has never been a serious player in iron ore, currently the biggest driver of the bulk commodity trade.

Canada produces fewer than 40 million tonnes of iron ore a year right now for a seaborne market that's bigger than one billion tonnes. Brazil and Australia dominate it with their vast deposits.

Since Canada is one of the only countries in the world with emerging iron ore production, it is no surprise that China is looking here. The order for Chinese steelmakers to expand globally came right from the top: In February, a senior official with the China Iron & Steel Association revealed that China wants to derive 40% of its iron ore imports from its own offshore projects by 2015.

The first sign of China's interest in Canadian iron ore came in March 2009, when state-owned Wuhan Iron and Steel Corp. (WISCO) agreed to invest US$240-million in Consolidated Thompson shortly after the financial crisis.

The money allowed Consolidated Thompson to finish building its Bloom Lake mine when raising money was almost impossible, and WISCO got guaranteed offtake.

More recently, WISCO cut separate deals with both Adriana and Century Iron. In each case, WISCO will get equity in the companies and major stakes in the joint ventures that will develop the projects.

So while the Canadians will build the mines, the Chinese will have a big say on development. China Minmetals Corp., one of China's biggest mining companies, is also involved with Century Iron.

With China acting so aggressively to secure iron ore offtake in Canada, industry experts say the next major player to watch is India.

Witness Monday's announcement that India's largest steelmaker, Tata Steel, signed a binding agreement with Canadian iron ore miner New Millennium Capital Corp. to develop the taconite iron ore deposit in Canada.