Canada gets boost from ArcelorMittal sale of Labrador Trough stake
Labrador Trough stake sale puts country on par with Australia and Brazil as source of shipments
The US$1.1 billion purchase of a stake in ArcelorMittal's Canadian iron-ore unit by China Steel and Posco increased interest in Canada's ability to meet Asian demand for the steelmaking raw material.
Champion Iron Ore Mines, Alderon Iron Ore and Labrador Iron Mines surged on Wednesday in Toronto after Taiwan's China Steel and South Korea's Posco led a group that agreed to buy 15 per cent of ArcelorMittal Mines Canada.
The deal, the second-biggest in the Canadian iron-ore industry, gave the Asian steelmakers' group access to deposits generating about 40 per cent of the country's production of the commodity, Luxembourg-based ArcelorMittal said on its website.
"It shows you that Canada is an important iron-ore producer and you've got foreign buyers demonstrating an interest in the product that we have, the infrastructure and the risks involved in operating here," said Wojtek Nowak, an analyst at Fraser Mackenzie.
Canada is positioning itself as a source of shipments to compete with Australia and Brazil, the world's two largest exporters of iron ore. Canada's Champion, Alderon and Labrador Iron plan to capitalise on the country's supply of skilled labour and its lower political risk compared with rival iron-ore regions such as West Africa.
ArcelorMittal, Champion and Alderon have projects in the Labrador Trough, a geological region straddling northern Quebec and neighbouring Labrador.
The ArcelorMittal transaction created a floor for iron-ore assets, said William Frohnhoefer, a New York-based analyst at BTIG.
"The dynamics coming into play are not necessarily related to the current spot price but long-term supply for guys who are not in home markets that are conducive to quality long-term iron-ore supply," he said.
Iron ore delivered at Tianjin port, a global benchmark price, slumped as much as 37 per cent last year, according to data from the Steel Index. It touched US$86.70 a tonne on September 5, the lowest in more than two years, as China's economic growth slowed, before rallying last month as confidence mounted that growth would accelerate.
Shipments of iron ore to China were likely to rise after inventories at local ports fell to the lowest since 2010, Arctic Securities said.
"The trend is strengthening with higher prices and tighter supply," said Laurence Balter, an analyst at Oracle Investment Research in Fox Island, Washington. "Cash-rich buyers hooking up with debt-laden producers is a matrimony made in heaven."
The ArcelorMittal deal "is a market validation of the Labrador Trough", said Rodney Cooper, president and chief operating officer at Labrador Iron. "It indicates there are still large global players who are aware of the Labrador Trough and willing to invest significant amounts."