...........TGR: What about North America and Canada?
EC: The Labrador Trough in Canada is an iron ore story. The first company we followed in the trough, Consolidated Thompson, was taken over by Cliffs Natural Resources (CLF:NYSE) at an impressive $17.50/share. Iron ore prices declined last year as traders fretted about China but have come roaring back to the $150/tonne level. There will be production coming onstream over the next couple of years that should moderate prices but $150/tonne is very high by historic standards. Most recent feasibility studies use longer-term pricing in the $100–115/tonne range.
The big question mark for the Labrador Trough right now is transportation. The current rail line is near capacity. CN just announced it was suspending its study on a new rail line, which sent most of the Labrador iron stocks into a tailspin. It will take time to resolve this issue. The solution might be a second rail line to the current main port on the St. Lawrence Seaway at Sept Îles, it might be a line going north or a slurry pipeline that avoids rail altogether. I don't know, but I suspect it will be one of them. There is too much value in the region for it to stay landlocked, but the transport issue will determine the short-term direction.
There are two companies in the trough that we currently follow. Champion Iron Mines Ltd. (CHM:TSX)has several iron ore resources in the area. Fire Lake North is the lead project and a prefeasibility study was recently released. The numbers were pretty good, but it has to deal with the rail situation noted above. It is one of the most advanced developers in the region with large resources so it's worth watching.
Cap-Ex Ventures Ltd. (CEV:TSX.V), the other company in the area I follow, issued a very impressive initial resource estimate of 7.2 billion tons (Bt) iron ore in the Labrador Trough. The resource, located on Cap-Ex's Block 103 project, is quite thick, good grade, flat lying and at or near surface. A 7.2 Bt resource is very large and it still has room to grow. Cap-Ex has the same challenge of convincing traders that the transport issue can be handled, but it's also very inexpensive compared to the size and quality of resource it controls.