Development of and access to infrastructure remains a significant challenge for local and global mining companies, according to a resource report released this month by Ernst and Young.
The consulting giant's annual Business Risk Report: Mining and Metals – an in-depth account of the major hurdles faced by mining companies such as capital allocation, skills shortages and resource nationalism – found infrastructure to be the ninth-greatest risk to the sector this year.
Much of the risk results from increased exploration in remote areas. In frontier zones, transportation, water and energy – all critical components of exploration and mine operations – are scarce or non-existent.
In Canada, the North faces the most serious infrastructure challenges. In each territory, companies shoulder considerable costs to build ice roads and port facilities and secure enough diesel to power their huge camps.
Typically, companies have only a few months each year to bring in supplies before ice roads melt.
"It's a significant challenge," said Bruce Sprague, Ernst and Young's Canadian mining and metals leader. "There are many new deposits in locations where infrastructure is not readily accessible. In Northern Canada, northern Quebec and northern Ontario, for instance, road, rail and access to ports are concerns."
Vancouver-based Sabina Gold & Silver (TSX:SBB) is in the advanced-exploration stage of its Back River gold project in western Nunavut, located about 160 kilometres south of Bathurst Inlet.
Because of Back River's remote location, Sabina must fly in all of its supplies. Last year the company flew in 80 planes transporting fuel alone. The company had a total of 900 flights deliver goods to the site.
Production at Back River is expected to begin in 2016-17.
Wes Carson, vice-president of product development at Sabina, told Business in Vancouver that his company is working with mining giant GlencoreXstrata (LSE:GLEN) to build a port facility and connecting road to the mine at Bathurst Inlet. GlencoreXstrata's Hackett River deposit is near Back River.
Carson expects the port to cost about $40 million. Beginning in late July, the companies will have about eight weeks to build it.
Although Sabina is poised to mine the Back River deposit soon, Carson acknowledged the cost of doing business in Northern Canada could be prohibitive for some companies. And that cost, he added, could keep the mineral-rich area from being mined extensively.
Some deposits will always be worth the risk, but those considered less than exceptional might not be developed.
"It's a very challenging place to work," he said. "The lack of infrastructure is what is holding [the North] back. If you want to be up there, you have to build it yourself."
In an attempt to lessen such considerable financial burdens, the Mining Association of Canada (MAC) is urging the federal government to provide "targeted and strategic investments" for key infrastructure projects in the territories.
For instance, MAC singled out the need for an overland trucking route on the southern-most segment – about 150 kilometres – of the Northwest Territories' winter road. The road connects three diamond mines in the territory and a new, more stable surface would extend the trucking season and fortify the current ice road in the event of a warmer winter.
MAC points out that improving infrastructure will also help communities in the area. Pierre Gratton, MAC president and CEO, said infrastructure projects in the North could serve residents and create a general "public good." A port in Bathurst Inlet is one example that reinforces the need for government support.
"When this is the case, this raises the question, 'Should the mining industry be paying for all of this?'" said Gratton.
"It raises a broader public-policy question." •
Massive infrastructure investments at Agnico-Eagle's Meadowbank mine
Currently, Nunavut's only operational mine is Agnico-Eagle Mine's (TSX:AEM) Meadowbank gold project. Located 70 kilometres north of Baker Lake in central Nunavut, the mine is expected to produce 360,000 ounces of gold this year and 358,000 in 2014.
Meadowbank required significant infrastructure construction to operate. For example, a floating dock was installed at Baker Lake so supplies could be received and a 60 million-litre diesel tank farm was built. Six large diesel generators powered the project, costing the company more than $70 million in energy bills.
For travel needs, a 110-kilometre road was installed, as was a 1,500-metre airstrip.