Thursday, September 29, 2011

How Much Does That Cost? Part III: Cliffs, Chromite & Moose Mountain

This is the third in a series of blogposts I’ve made this past week regarding issues related to costs which I’ve been pondering. In Part I, I wrote about the hidden costs of nuclear energy, many of which I was unaware of before the last 6 months. I started taking a very close look at nuclear power after reading about the Japanese nuclear industry dangerously misleading the government and the people of Japan about what was really happening at Fukushima Daiichi. I also began to pay close attention to the Nuclear Waste Management Organizations plans to find a Northern Ontario community to host a long-term nuclear waste storage facility. The potential issues related to the transportation of nuclear waste through Greater Sudbury has now led to the creation of a new organization in my community, Nuclear Free Sudbury.

In Part 2, I wrote about the unfortunate situation which the City now finds itself in with regards to the competition over the use of Market Square. On the one hand, there’s Laurentian University, which wants to put its new School of Architecture there, and on the other hand, there’s the existing farmer’s market, which uses this specially-built site on the weekends to bring local food and crafts into the city centre. Both of these uses should be located in the downtown, and it’s unfortunate that it looks like the farmer’s market is going to have to find a new home. What I want to know is how much that’s all going to cost, and whether once all costs are added together, there remains an economic case for the new School. I suspect that there would be, but I just don’t know.

Cliffs Natural Resources Chromite Project

In Part 3, today I’m going to write about another emerging issue in my community that I hadn’t really given much thought about until earlier this year. Cliffs Natural Resources, a mining company based in Cleveland, Ohio, came into possession of something called the Black Thor deposit in Ontario’s remote north. This is in the McFaulds Lake area, also known as the Ring of Fire. It’s located about 340 kilometres north of the railhead at Nakina, in the midst of the James Bay lowlands, which is one of the largest wetlands in the world.

Cliffs wants to develop a chromite mine in this area, and process some of the ore mined on site. Raw ore and concentrate produced at the processing facility will then be moved south to Nakina, which is on the Canadian National Rail line. From there, it can be shipped by rail to a new ferrochrome production industry, where it will be further refined to produce granulated ferrochrome for global stainless steel industries. Alternatively, it can be shipped by rail to ports and head out of Canada, as currently there isn’t a facility in North America which refines chromite.

Cliffs has been interested in building a ferrochrome production facility on a vacant site 20 km northwest of Capreol, which is a community within the City of Greater Sudbury. Currently, this site is occupied by an aggregates operation, but there’s not much else going on there. The site has been described as a “brownfield” because in the past, there was a mine and related industrial infrastructure there (known as “Moose Mountain”), along with a small community, called Sellwood. Back in the 1930s, Sellwood was completely abandoned after Moose Mountain closed down, so it’s fair to say that the area being looked at by Cliffs is a ghost town.

Cliffs projects that building the ferrochrome refinery will bring about 500 construction jobs into the community. The refinery itself, when its up and running, will employ between 400 and 500 people at good, well-paying jobs. Needless to say, this is an exciting opportunity for Greater Sudbury, a city with an unparalleled rich history in mining and processing.

I know all of this because the Sudbury Star posted a handy link to a document developed by Cliffs (dated March 22, 2011) just last week, in anticipation of Greater Sudbury municipal Councillors and the Mayor travelling to Cleveland to meet with Cliffs. Here’s the link to the document, “Cliffs Chromite Project: Project Description Summary

Attracting Cliffs

You see, the Moose Mountain site northwest of Capreol isn’t the only site being eyed by Cliffs for a ferrochrome production facility. The City of Thunder Bay, and the municipality of Greenstone (in which Nakina is located) are also in the running. Timmins thinks it has a chance, but I don’t see how, as one of Cliffs requirements for the ferrochrome facility is that it be accessible by rail from Nakina. The cost of shipping materials to Timmins from Nakina by truck isn’t something any company which wants to make money would ever contemplate. Moose Mountain, Thunder Bay and Nakina are all on the CN rail line (well, Moose Mountain needs a short spur, which used to exist at one time, and the right-of-way remains intact).

So, there is some healthy competition going on here between northern Ontario communities to bring jobs to town. And you know what happens when communities find themselves in competition with one another for jobs, right? They usually end up falling all over themselves to bring in the new business or industry by trying to create the most attractive economic situation possible, which usually amounts to subsidies of one sort or another being offered.

Cliffs project, however, isn’t some little mail-order catalogue business. It’s a big deal. A huge deal. In fact, it’s going to take a lot to make any northern Ontario community look attractive to Cliffs, given the economics around chromite mining and processing. The advantages that Greater Sudbury can offer over Thunder Bay aren’t nearly as important to Cliffs as the advantages that Ontario can offer over Quebec, or vice versa. You see, Quebec (and Manitoba) have something that is desirable to Cliffs which Ontario doesn’t have: relatively inexpensive electricity.


You see, according to Cliffs, the arc furnace which will power the ferrochrome production facility will require the same amount of power as….are you ready for this? I wasn’t when I first saw this little tid-bit of information, it was unbelievable, but this comes straight from Cliffs. The ferrochrome facility will use as much electrical power as does a city of 300,000 people.

That’s just a smidgen less than twice the population of the City of Greater Sudbury. So building this facility will be like building two new Greater Sudburys in terms of electrical needs (well, maybe not exactly, given that Greater Sudbury already has a lot of heavy energy users due to the mining and refining which is happening here. Call it two new Barries instead maybe).

That’s a lot of watts of power. I mean, I knew that mining used a lot of energy, but that’s one heck of a lot of power. No kidding that Cliffs wants to get the best deal on energy that it can. When you’re using that much, a few cents per kilowatt hour (the difference between peak and off-peak for time of use energy users) can literally mean billions of dollars a year. I don’t know how many billions, but it would be a lot, I think.

And that’s my point. I don’t know how many billions Cliffs might save if they build a ferrochrome production facility in a jurisdiction which offers reduced energy rates. But why should I be concerned? That’s business decision which Cliffs is going to have to make for itself, right? What business of that decision is my business?

We Are The Stakeholders

Well, if Greater Sudbury is falling all over itself to convince Cliffs to locate the ferrochrome production facility within its municipal boundaries, it seems that the Province of Ontario is also doing what it can to create an attractive investment climate for Cliffs. And that means (you guessed it): subsidies. Specifically with regards to what I’ve written so far, it means subsidizing the costs of energy in order to make Ontario just as attractive to Cliffs as Quebec might be.

So when governments are dangling subsidies in front of industries to attract investment, guess what? I suddenly become an interested party, and you and I both are stakeholders in this decision making process. None of this is to suggest that governments shouldn’t offer businesses incentives to set up shop in their jurisdictions. Look, I’m actually all for that idea. But there has to be a strong economic case made which justifies the rationale. Which brings us back to costs, and in this case, the price of electricity.

Paying the Electricity Bills

Let’s step back for a moment. Why are the costs of electricity so much higher in Ontario than they are in Quebec. Actually, there are a number of reasons, but the biggest one is that Quebec chose to invest in massive hydro-electric projects in its northern regions, which led to significant environmental damage on the ground. Ontario, wanting to avoid the headaches experienced by Quebec, chose to invest billions upon billions of dollars in expensive nuclear energy instead, while keeping inexpensive (but environmentally damaging) coal powered facilities.

As cheap coal has come offline over environmental concerns (in part: let’s be upfront here, the coal plants were reaching the end of their lifespans anyway), and with the crazy way energy has been handled by government after government in this province, we’ve begun to experience a real rise in electricity rates, while Quebec hasn’t. In fact, they’re producing so much excess energy in Quebec, they’re making money off of exporting it to the United States. So Quebeccers are benefiting from inexpensive hydro electric rates and making a buck off of exporting raw energy. Good for them.

So what can Ontario do to gussy itself up for Cliffs, with the hope that Cliffs will ask Ontario to the dance instead of Quebec? Why, Ontario will have to offer competitive electrical rates for Cliffs! That’s the ticket!

But…who is going to pay for the two new Barries worth of electricity? Either Ontario’s ratepayers will pay through higher rates, or taxpayers will take on the burden through subsidies. Likely it will be the latter, but either way, I’m talking about your money and my money going to Cliffs.

Again, that might not be a bad thing. Our money goes to all sorts of different places right now through one program or another, ostensibly in pursuit of the greater public good. Hey, again, I’m all for that.

The Greater Public Good

But what is the greater public good in the case of Cliffs? That’s the question that I’d like to get some answers to. What is the expected cost of providing subsidized electricity so that Cliffs can produce ferrochromite and turn a profit? I’d really like to know, especially given that Ontario’s debt continues to grow daily, and our current $15 billion deficit won’t be slain until 2017 (and then only if the economy continues to perform above expectations. With the markets tanking and a recession imminent, slaying the deficit in a few years might just be wishful thinking).

I’ve said it before and I’ll say it again: we are all living beyond our means. Our economy predicated on growth at all costs is not sustainable, and we are bumping against the limits of growth. The era of inexpensive energy is over, and we all must adapt. That means we’ve got to start thinking locally, and acting globally. By that I mean that we have to start to get serious about reducing climate changing greenhouse gas emissions, and doing full cost accounting of all public expenditures. Growth isn’t sustainable.

A Case for Chromite?

With regards to Cliffs, however, the world continues to need chromite, right? Well, yes and no. Actually, demand for chromite has plummeted over the last decade, as new deposits were brought on stream. Right now, the price is very low, and we’re about to enter a recession, which is never good for the mining industry. It’s not Xstrata’s fault that it took a hit last week on the European exchanges; that’s just the nature of the economic beast we’ve created.

Chromite prices are already low, and if Black Thor and other deposits in the Ring of Fire (like Big Daddy…seriously, who gets to name these things?) are brought on stream, we can expect to see even lower prices for the product. Which means that for Cliffs to make money (and for Greater Sudbury to keep those 400 to 500 jobs), governments might have to dig deeper into their pockets and offer greater subsidies.

As Black Thor is expected to have only a 25-35 year lifespan (according to Cliffs, the initial open pit mine will operate for 10-15 years, and then the underground mine will operate for another 15-20), and as the Mining Act already provides a 10 year tax holiday for remote northern Ontario mines, what was the economic case for chromite again?

Infrastructure and Environmental Costs

Oh ya…have I mentioned anything about the infrastructure which will need to be built to actually access the deposit? Right now, there’s a road which heads north from Nakina for about 80 km. But Black Thor is another 260 clicks north of that. That means that we’ll need to build some kind of transportation corridor northwards from Nakina for quite a considerable distance, over muskeg and bog and some wide fast flowing rivers. Cliffs believes that a road will prove itself to be cheaper. That may be the case right now, but look at some of these numbers (thanks again to Cliffs):

Black Thor is expected to produce between 3,600 and 7,200 tonnes of raw ore and concentrate a day. All of that needs to be moved south to the Nakina railhead. The average truck holds about 70 tonnes of material. Cliffs estimates that between 50 and 100 trucks will be making the 340 kilometre journey from Black Thor to Nakina each and every day (and then they’ll head back again, empty).

With rising gasoline prices, what might the costs of transportation be? Might it not be less expensive in the long run to consider building a rail line between Nakina and Black Thor? Sure, the initial costs might be more substantial, but think about future costs. Higher gasoline prices are even more likely. When you factor in a tax on carbon (which is inevitable), trucking might begin to look less attractive. Certainly there would be fewer greenhouse gas emissions if rail is used. I don’t know what would ultimately be less expensive for Cliffs, but I do know that we can’t ignore the real costs which are associated with carbon emissions any longer. Trucking might seem a better deal for Cliffs right now, but that might only be because they (and all of us) are allowed by our governments to treat our atmosphere as an open sewer. And that’s just not sustainable. Which is why carbon pricing will be coming to a future near you.

Whose going to be on the hook for building whatever kind of transportation corridor ultimately gets built? Why, that’ll be us taxpayers again, either totally on the hook or in partnership with industry. And what about those electrical transmissions lines to deliver the power to Moose Mountain? How much is all of that going to cost?

Answers Needed Before Commitments Are Made

These questions about cost are really ones which we need to get some answers to before we embrace the concept of mining Black Thor and building a ferrochrome refinery in Ontario. That’s not to suggest that I’d be in favour of mining the deposit just to see it shipped to Quebec or China for the value-added refining by the way. But I do want to know what the costs are expected to be. Because if those costs are too high, it might simply be best to leave the resource in the ground for now.

And that’s something nobody seems to be talking about. So I guess I’m going to start that conversation.

I very much look forward to participating in the environmental assessment process which Cliffs is going to have to go through with the federal and provincial governments, because I expect some of the answers to the questions that I’ve asked here will be addressed by that process. However, I know that our environmental assessment processes are deficient in Canada, because we refuse to look at the full costs of any project (and here I’m referring to a number of environmental costs, including carbon emissions). Without legislative requirements to address those costs, they won’t be assessed, which is bound to leave us with an incomplete picture about the full costs of Cliffs chromite project.

I’m all in favour of bringing 500 new jobs to my City as long as there’s an economic case which can be made for doing so. Right now, I’ve yet to see it, and the more I look into it, the more questions I have. I’m sure that others in my community are bound to find themselves in the same quandary that I have, asking themselves, “How much does that cost?”

(opinions expressed in this blog are my own, and should not be interpreted as being consistent with those of the Green Party of Canada)

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