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(Kitco News) - Adriana Resources Inc. (TSXV: ADI) feels it has a top-notch iron ore project in its Lac Otelnuk project, located about 170 kilometers north of Schefferville in northern Québec, but the lack of a railway able to transport its product is weighing on the company.
Allen J. Palmiere, president and chief executive officer at Adriana, was among several keynote speakers at the Québec Mines 2012 conference in Québec City. He spoke of the company’s deposit along the Labrador Trough and stressed the importance of putting in the framework for a new railway to transport the millions of iron ore the company expects to produce.
“The big issue is rail,” Palmiere said. “I think that most people are aware that CN, backed by the Caisse de dépôt, have a proposal to build their own railway and operate a rail and port infrastructure in the north. A number of companies have signed up with them, at least on the feasibility level; we’re not one of them.”
Canadian National Railway Co. and pension fund manager Caisse de dépôt et placement du Québec are working on an estimated $5 billion project to build a new 800-kilometers railway from Sept-Îles north past Shefferville into the Labrador Trough.
“We have been in discussion with CN for many months. We have reached a bit of an impasse but discussions are not over,” Palmiere said. “We are currently and we have continued to explore alternatives, and there are viable alternatives.
“A project like this can be funded privately; there’s no need to have any government funding. It requires government support, but it does not require government funding,” Palmiere said. “Based on some of the work we’ve been doing recently, we don’t believe that it will be that difficult to fund.”
One of the main issues for Adriana is that the company has a high volume of iron ore that it needs to move. There are two other railways currently running a route that suits Adriana but one is a privately owned railway and the other has several other miners transporting their own goods on it, rendering Adriana’s volume too high.
“What we have right now, to our knowledge, is the second-largest discreet deposit of iron ore in the world,” Palmiere said. “We have drilled in all categories nearly 23.75 billion (metric) tons of iron ore. The deposit is still open along strike and to a limited extent down depth.
“What we’re planning on is for the project to produce 50 million (metric tons) of high-grade concentrate per year and the mine life at this stage with that production is well in excess of 100 years,” Palmiere added.
Adriana recently joined with Chinese steel giant Wuhan Iron and Steel Corp. (WISCO), which now owns just over 19% of Adrianna. They acquired a 60% interest in the project in exchange they agreed to finance 70% of the capital costs of the project.
WISCO is looking at increasing production, which makes the need for a railway framework to be put in place all the more important.
“We spent three years trying to negotiate a joint venture with WISCO, a very large Chinese steel producer,” Palmiere said. “Last year they produced just under 40 million (metric) tons in steel, they used almost 60 million (metric) tons in concentrate. Their current plan is to expand our production to 60 million (metric tons) in steel and they will need about 90 million (metric) tons in concentrate.”
Time is also an issue for Adriana as mining in northern Québec gives companies a limited timeframe to conduct studies, among several other mining related tasks.
“This has to be resolved relatively soon,” Palmiere said. “The railway is a critical path and based on our projections, we have to have a final resolution of the railway within six months. Otherwise, we lose another year.
“If we get this result within the next six months, we can begin our environmental work for the rail next spring,” Palmiere added.
By Alex Létourneau of Kitco News [email protected]