IOC exec says Labrador West operations 'at risk'

A top executive with the Iron Ore Company of Canada says its operations in Labrador West are under threat, but adds recent productivity gains and cost-savings have injected some optimism into the equation.

"If we continue on this course … I think we've got a good chance for survival. But the business is at risk," said Mike Wickersham, vice-president of northern operations for IOC.

• It's a double-dose of uncertainty for Labrador's iron ore industry

Some industry analysts have been raising concerns about IOC, describing it as a money-losing operation and predicting a possible closure.

IOC employs some 2,000 people in Labrador West. A closure would deal a devastating blow to the area, which continues to reel from the closure of Wabush Mines in 2014, and the closure of the Bloom Lake mine in northeastern Quebec.

A high-cost producer

But there are some positive developments.

Production at IOC has increased by about 20 per cent to 21 million tonnes of ore per year, and nearly every area of the business is running at a higher level of efficiency, said Wickersham.

On the downside, iron ore prices are less than half of what they were 18 months ago, and IOC is still considered a high-cost producer in comparison to operations in Australia and Brazil.

Wickersham said IOC is breaking even, but now there's another challenge facing the company — increasing power costs.

The new Labrador industrial rate structure, which came into effect in January, will translate into a $35-million increase in costs to IOC, said Wickersham. 

The company is lobbying the provincial government for a rate reduction, and Natural Resources Minister Derrick Dalley said the request is being considered.

However, he said the province won't recklessly reduce electrical rates for IOC, saying the company already pays the lowest rates in the country.

"It's about half the equivalent rate in Quebec. So the rate is very, very competitive," said Dalley.

"But having said that, it certainly has been an increase from the historical rate."

Dalley said the new rates reflect Newfoundland and Labrador Hydro's costs of operating and maintaining the Churchill Falls hydroelectric facility.

"If IOC doesn't pay the cost, then someone else has to pay the cost," Dalley said. "And we're not interested in transferring any of the costs onto rate payers of Labrador. So that's a fact that we have to consider."

Dalley said he's concerned about the future of IOC, and says the government is working closely with the company.

Is break even enough to save IOC?

Prices have plunged from a high of $US130 per tonne in January 2014 to roughly $56. Wickersham said the company can't control prices, but he said employees have risen to the challenge in other areas.

The time it takes to service the massive haul trucks at the mine, for example, has been cut in half, he said.

He described some of the improvements as a "remarkable transformation."

But is breaking even enough to ensure a future for the company in Lab West?

Wickersham said it will depend on the company's ability to convince Rio Tinto, IOC's majority owner, that productivity gains will continue.

"I think that that continued focus and continued improvement certainly buys us a little bit of time to decide if break even is good enough," he said.

Faith in the employees

IOC is facing some crippling disadvantages, including the roughly 28 days it takes to ship its products to the Asian market.

It takes just six to seven days for mines in Australia.

And unlike the mines in Australia, ore taken from the ground in Labrador must be processed into concentrate, and some of that is further processed into pellets, said Wickersham.

Despite the challenges, Wickersham believes there's a future for IOC.

"Unless we see prices fall so dramatically that no business in that environment can survive, I've got a lot of optimism about what people can deliver here," he said.

As for labour relations at IOC, which have been described by some union leaders as toxic, Wickersham admits it's not a top priority.

"We've chosen to really focus on getting productivity out in the field rather than focus on working through union related issues," he said.