The Liberal party of Ontario is desperately trying to rebrand itself under Kathleen Wynne before the electorate gets a chance to voice their displeasure with the multiple scandals that evolved under Dalton McGuinty. There have been so many, and they have had such a huge impact that they are threatening to dominate his legacy. They were beginning to overshadow even that of healthcare and education reform, which he felt were the most important to us and invested so much of our money in.
The inclusion of the word "new" with every reference to the government and the distribution of "style points" and "preferred phrases", may serve as marketing gimmicks to trick the public into thinking they have changed their leadership, but the reality of governing will wear them off very quickly.
Ms. Wynne is content to allow public scrutiny of the most recent scandal to put some distance between herself and the former premier but she is failing to do that in the case of ONTC in northeastern Ontario. One could argue that this region doesn't matter to her, since there will be no support in the next election here anyway, but that opinion fails to take into consideration the power of an election campaign.
A recent poll shows the Liberals entrenching their support in Toronto, but the 1045 people on which that result is based, probably include a high percentage of people who only scratch the surface of political debate. Most of those who responded to the poll are quite likely influenced by the fact the Liberal leadership convention gave more publicity to Ms. Wynne, than the other two leaders. In the runup to an election, which could happen at any time between this spring and Oct 2015, the public becomes a lot more engaged in politics and tunes in to a much greater degree, because some of them will actually cast a vote.
It is at that point that the current strategy of letting the MNDM control the divestiture of ONTC will come back to bite Ms. Wynne. The anger and resentment that paying lip service to a consultation process results in, will lead to an active campaign to highlight Liberal incompetence. The links back to other Liberal missteps have not been completely severed by the new premier and it will not take much to pull them back into the spotlight, just in time for the electorate to review them.
The Auditor General report, due out this summer, will show without a doubt that the MNDM plan to save $269 million by 2014/2015 is so far off the mark, that the entire plan of ONTC divestiture must be based on some other premise. The consultative approach of which Ms. Wynne is wholly supportive, will look like another gimmick to gain the confidence of the people, instead of something she truly believes in.
There is a simple way for Ms. Wynne to test if MNDM is feeding her an ideological trap or actually starting the process for improvements in Northern Ontario. We are now one third of the way along toward that 2014/2015 time target and the Northlander savings should have been accumulating since last Sept, so how much of that $269 Million have we saved?
It is not likely the ministry will release any of that information to anyone, other than the Auditor General and the Premier. We will know from the AG in the summer after it is too late to reverse the decision to sell Ontera. The Premier has the power to look at it now before it is too late. Either way, the ability to shed the shackles of incompetence is within her grasp....the only difference is, if she does it now, she can change the campaign rhetoric later.
NORTHERN ONTARIO - POLITICAL ISSUES An opinion on the issues affecting the province and primarily Northern Ontario
Wednesday 27 March 2013
Friday 22 March 2013
Should we play hardball with the Ring of Fire?
The NDP are proposing that the mining industry contribute to the economy of Ontario by utilizing the chromite ore in the Ring of Fire in the production of stainless steel, while the Liberals are content to get ferrochrome produced here. Ferrochrome is made from chromite, iron and nickel, all of which are available in Ontario, but not from mines owned by the same company.
The Liberals feel if they are able to get the private sector to produce ferrochrome in Ontario, that would be enough to justify access to our natural resources. There are a large number of factors and stakeholders that need to be considered if this area is to be developed and economic benefits produced.
The Liberal progress in the overall negotiations thusfar has been to commit to building a road into the region and collect tolls at an unknown rate from mine operators who want to use it to get their product to market. This solution was predicated on a smelter that would be located in Sudbury and an unknown hydro rate.
The exclusion of First Nations from using the road, and the unsuitability of that road to handle heavy ore traffic seems to explain why the Liberal government wanted to negotiate this deal in private and without stakeholder input.
When one looks at the Voisey Bay deal in Newfoundland, which saw that government press for, and receive, a commitment to build a processing plant in their province, it appears that more stakeholder input may be required to formulate the optimum deal in Ontario.
Cliffs is not the only player in the development of the region and all those with significant stakes should be brought to the table. The First Nation communities participation is vital to both local labour availability and most importantly, as environmental stewards of their region. The ONTC can, and should, play a significant role in the transportation area, and notwithstanding their exclusion from the Northern Growth Plan, the recognition of their expertise, both management and union, is critical to the successful operation of a railroad in northern Ontario.
The table will be rounded out by the federal government, since they have an obligation to provide access to remote regions, they will participate in tax revenue and since the export of chromite to China is probable, at least in the short term, they will be responsible for any export tax that may be applied to that product. It should be a significant tax and dedicated to the creation of a stainless steel industry in Ontario.
The formation of an advisory committee on ONTC by the Liberals is a good indication of changing attitudes with the change in leadership. The following charts show there is lots of room between Newfoundland and Ontario in what they demand from mining companies. The tax rate of 5% in remote areas of Ontario seems a little low for a deal that would see the government provide a road into the area, and a subsidy on their hydro use also. Newfoundland was still able to get a processing facility built in their province for the nickel extracted from Voisey's Bay, in spite of higher royalties.
Cliffs has not yet recognized the importance of working with all concerned, but with their falling share price, economics may dictate a more co-operative approach. It will take time, but lets hope the current government expands the concept of bringing stakeholders together and negotiates a deal that will benefit all. We will be watching closely to judge their performance.
The Liberals feel if they are able to get the private sector to produce ferrochrome in Ontario, that would be enough to justify access to our natural resources. There are a large number of factors and stakeholders that need to be considered if this area is to be developed and economic benefits produced.
The Liberal progress in the overall negotiations thusfar has been to commit to building a road into the region and collect tolls at an unknown rate from mine operators who want to use it to get their product to market. This solution was predicated on a smelter that would be located in Sudbury and an unknown hydro rate.
The exclusion of First Nations from using the road, and the unsuitability of that road to handle heavy ore traffic seems to explain why the Liberal government wanted to negotiate this deal in private and without stakeholder input.
When one looks at the Voisey Bay deal in Newfoundland, which saw that government press for, and receive, a commitment to build a processing plant in their province, it appears that more stakeholder input may be required to formulate the optimum deal in Ontario.
Cliffs is not the only player in the development of the region and all those with significant stakes should be brought to the table. The First Nation communities participation is vital to both local labour availability and most importantly, as environmental stewards of their region. The ONTC can, and should, play a significant role in the transportation area, and notwithstanding their exclusion from the Northern Growth Plan, the recognition of their expertise, both management and union, is critical to the successful operation of a railroad in northern Ontario.
The table will be rounded out by the federal government, since they have an obligation to provide access to remote regions, they will participate in tax revenue and since the export of chromite to China is probable, at least in the short term, they will be responsible for any export tax that may be applied to that product. It should be a significant tax and dedicated to the creation of a stainless steel industry in Ontario.
The formation of an advisory committee on ONTC by the Liberals is a good indication of changing attitudes with the change in leadership. The following charts show there is lots of room between Newfoundland and Ontario in what they demand from mining companies. The tax rate of 5% in remote areas of Ontario seems a little low for a deal that would see the government provide a road into the area, and a subsidy on their hydro use also. Newfoundland was still able to get a processing facility built in their province for the nickel extracted from Voisey's Bay, in spite of higher royalties.
Cliffs has not yet recognized the importance of working with all concerned, but with their falling share price, economics may dictate a more co-operative approach. It will take time, but lets hope the current government expands the concept of bringing stakeholders together and negotiates a deal that will benefit all. We will be watching closely to judge their performance.
Thursday 14 March 2013
Ring of Fire - Rail or Road - Further Arguments
There is only one route into the Ring of Fire from Nakina, the closest existing rail access, on a natural esker that is unique in the muskeg of the region. KWG Resources has staked mining claims along the entire route and wants to put a railroad in.
Cliffs Natural Resources, after negotiating with the Ontario government, wants to put a road over the same route and has applied for an easement over the mining claims of KWG.
In advance of a ruling that is expected any day on that application, Cliffs has also filed application for permits on every aggregate source along the route, since there is not enough material in the region, to build either a railway or a road and the balance will have to be transported into the area.
The impact on the First Nation's in the area must be considered also. There are several FN communities in the region whose isolation can finally be addressed by the transportation needs of the mining development.
First Nation communities are also the most affected by any environmental damage done by the project and are justly demanding close attention be paid to the ecological effects from the start.
When one considers the positions of these stakeholders and the fact that the Ontario government operates a railway that suffers from a lack of revenue, one has to wonder about how the road option has made it this far.
The road option involves hauling ore concentrate out of the region in 70 ton trucks, such as the model as pictured here.
Given the expected 3000 to 4000 tons of concentrate per day, that would require 40 to 60 trucks of this size per day making the 8 hour trip at top speed of 40 mph. With this volume of traffic with only one development, it is no wonder the deal would restrict First Nation's from accessing the road. The difference in size of the vehicles involved is evident in the picture and I believe safety would be compromised.The other issue which immediately comes to my mind, is how much has been budgeted for road maintenance, given the size and weight of these vehicles and the effects of spring on northern roads. Would half load restrictions in the spring double the number of vehicles or the amount of road maintenance required?
In my previous post, I spoke about the comparison of 100 car train versus 157 trucks, but if only one mining project is considered that comparison should be scaled back to one 30 or 40 car train, ONE rail engine, and two crew members versus 40 to 60 trucks each with an engine and driver. Again the environmental superiority of rail in the base case and an expanded volume case is clearly evident.
The other issue to be considered is how the transportation system would be financed. The road option advanced by the government and Cliffs would be a toll system, proportionally paid for, by each company that shipped product on the road. If we assume that each company is going to track the number of vehicles they put on the road, then this proposal will require oversight by the government and a new bureaucracy to bill and collect revenue.
Compare the efficiency of that model to the rail one, where administration is already in place to handle billing and the shipping charge that companies are going to have to pay anyway, will include an amount required to payback the capital investment.
Since the Ferrochrome Production Facility (FPF) has only been located in Capreol as a Base Case scenario, the final location is still open for negotiation. If the government wanted to direct revenue into their own operation, it would make sense to bargain for the FPF to be located in Timmins.
This makes sense for a number of reasons.
First, combined with ownership of the new rail line into the Ring of Fire and the construction of a line over the abandoned rail line from Nakina to Hearst, the initial rail movement would be entirely under government control from the mining site to the FPF. I have posted before about the benefits of working with a company which has a mandate to economically develop the region opposed to a President who answers to American shareholders.
Further to that, Cliffs has stated they want to sell Ferrochrome to the world first, then sell chromite directly after that. The main users of ferrochrome are stainless steel producers, the majority of which, are located in the eastern US and in Europe, so producing it in Timmins would be enroute to final market, which makes sense from a business and environmental perspective.
I believe ferrochrome also requires iron and nickel, so with the proposed Noront nickel development in the Ring of Fire, those two commodities could travel on the same train. Cliffs has iron ore capacity at their mines in eastern Canada, so Timmins would minimize the transportation of that commodity as well. The ONTC portion of that freight revenue would again offset the cost of the initial capital expense.
Turning our attention back to the needs of the First Nations in the area, ONTC is already well experienced in providing rail passenger service combined with freight operations. The rail option could include a service similar to the Polar Bear Express which can offer passengers the ability to ship their vehicle on the same train. See Photo
If one considers all these points, I fail to understand the apparent government position in these negotiations. One can only hope the "new" Liberal government brings a new position in these negotiations. The New Deal could incorporate all these factors within their proposal. They deserve a place at the table to explain how.
References
http://www.thesudburystar.com/2013/02/02/ring-of-fire-rail-or-road
http://www.nan.on.ca/upload/documents/energy2012-pr-harvey-yesno---rof.pdf
http://wawataynews.ca/archive/all/2012/9/13/ontario-negotiating-build-ring-fire-toll-road_23458
http://www.northernontariobusiness.com/Industry-News/mining/2012/10/Toll-road-to-the-Ring-of-Fire-.aspx
http://www.republicofmining.com/2013/01/10/project-focus-ring-of-fire-by-john-chadwick-international-mining-january-2013/
http://www.cliffsnaturalresources.com/EN/aboutus/GlobalOperations/chromite/Documents/Ferro%20Report%20Updates%20-%20January%202013/Final%20Amended%20ToR%20-%20January%202013%20-%20Attachments.pdf
http://www.cliffsnaturalresources.com/EN/aboutus/GlobalOperations/Pages/Ferroalloys.aspx
http://www.republicofmining.com/2013/02/22/rail-over-roads-the-way-to-go-for-ring-of-fire-study-by-jeff-labine-tbnewswatch-com-february-22-2013/
Thursday 7 March 2013
Competitive Rail Access...Critical in the North
One of the key factors in the development of the Ring of Fire, is the transportation system to get the ore out of the region. Without getting into the argument of where that ore should be processed, (and I think this ore body is big enough that it makes sense to invest in a fair amount of infrastructure as close to the region as possible) it has been determined that rail is a preferable option to road.
The fact that the study used to confirm rail's superiority was commissioned by the company who has spent the most to secure a rail route does not diminish the obvious fact that rail can handle a much higher volume of heavy traffic than a road. There are a few assumptions in the rail scenario that may raise an eyebrow in rail circles (like the 55 mph train service on a railbed newly constructed in Northern Ontario weather conditions) but overall the assumptions are valid.
In the rail option, close to 100 110-ton capacity rail cars can be hauled by 3 engines and 2 crew members, compared to the same amount of ore hauled on the road by 157 70-ton trucks which also includes 157 engines and 157 drivers. That overwhelming efficiency supports the conclusion of the study, regardless of the perceptions and assumptions. Neither does it take an engineer to assess the environmental superiority of the rail option.
The operations of the railway, including locomotives and rolling stock, are not well defined and will require much more detail as the plan unfolds, but it is the operator of the railroad that needs to be figured out as soon as possible. The 15% provision for profit margin means that a private operator could be involved, but the public/private argument needs to be heard in its entirety before that decision is made.
The argument supporting a private operator would be buttressed by the need to provide an efficient operation which can be demonstrated by the existence of a profit margin, which is easily benchmarked. The public ownership side of the equation is not so easily explained though. It is possible to demonstrate the efficiency of a public operation, but one has to carefully compare the operations with similar industry benchmarks while fully explaining the effects of any public policy that may provide benefits, but impact the operation.
In the rail industry, the configuration of the system has led to some shippers being subjected to the revenue whims of the rail transportation provider. The effect of this hard squeeze by the powerful rail company on the captive shipper has led to government intervention by way of the Fair Rail Freight Service Act, which was passed in Dec 2012 after a lengthy review process.
This piece of legislation may remedy the situation faced by captive shippers, but it is a legislative solution to a problem that can be avoided by providing real competition in the first place. This solution rules out either of the major roads operating the line and rather than relinquish control of the rail system to a shortline operator who is ultimately under the thumb of their connecting Class 1 carrier, the operation of ONTC by the Ontario Provincial government stands as a shining example of what public ownership of a regional line can accomplish.
The paper mill in Kapuskasing was able to be saved by ONTC in taking over the Northline when CN abandoned the region in 1993, and the subsequent development of the Agrium mine at Opasatika was only possible because that line was still there. Further to that, when ONTC told Lecours in Calstock that they would have to relocate to Hearst for rail access, since the line between Hearst and Calstock had deteriorated to a point where service was impossible, Lecours went after the government for line rehabilitation money. The Liberal government funded the line upgrades through the ONTC and the operation in Calstock was saved. That intervention and subsequent economic benefit to the locality was only possible because it was a public operator in charge.
If stakeholders want to have maximum control over the transportation of the ore, and the jobs associated with it, they need to find a way to ensure a public railway operator is found. Luckily, such a plan already exists and is awaiting evaluation by the Ontario government. It is the "New Deal" involving the James Bay Lowlands Port Authority and it is gaining support from stakeholders in the region.
ONTC is already subject to federal rail legislation and the port authority concept, clarifies the federal government's role in a provincial rail company. The federal/provincial relationship in the oversight of ONTC has led to confusion in the past, and this plan overcomes that. The fact that the plan has First Nation support also puts it well ahead of any other in a situation where further delay will have devastating ramifications.
The Ontario government needs to step up to the table and participate in making this plan a reality to give real impetus to an economic recovery that has thusfar refused to ignite.
The fact that the study used to confirm rail's superiority was commissioned by the company who has spent the most to secure a rail route does not diminish the obvious fact that rail can handle a much higher volume of heavy traffic than a road. There are a few assumptions in the rail scenario that may raise an eyebrow in rail circles (like the 55 mph train service on a railbed newly constructed in Northern Ontario weather conditions) but overall the assumptions are valid.
In the rail option, close to 100 110-ton capacity rail cars can be hauled by 3 engines and 2 crew members, compared to the same amount of ore hauled on the road by 157 70-ton trucks which also includes 157 engines and 157 drivers. That overwhelming efficiency supports the conclusion of the study, regardless of the perceptions and assumptions. Neither does it take an engineer to assess the environmental superiority of the rail option.
The operations of the railway, including locomotives and rolling stock, are not well defined and will require much more detail as the plan unfolds, but it is the operator of the railroad that needs to be figured out as soon as possible. The 15% provision for profit margin means that a private operator could be involved, but the public/private argument needs to be heard in its entirety before that decision is made.
The argument supporting a private operator would be buttressed by the need to provide an efficient operation which can be demonstrated by the existence of a profit margin, which is easily benchmarked. The public ownership side of the equation is not so easily explained though. It is possible to demonstrate the efficiency of a public operation, but one has to carefully compare the operations with similar industry benchmarks while fully explaining the effects of any public policy that may provide benefits, but impact the operation.
In the rail industry, the configuration of the system has led to some shippers being subjected to the revenue whims of the rail transportation provider. The effect of this hard squeeze by the powerful rail company on the captive shipper has led to government intervention by way of the Fair Rail Freight Service Act, which was passed in Dec 2012 after a lengthy review process.
This piece of legislation may remedy the situation faced by captive shippers, but it is a legislative solution to a problem that can be avoided by providing real competition in the first place. This solution rules out either of the major roads operating the line and rather than relinquish control of the rail system to a shortline operator who is ultimately under the thumb of their connecting Class 1 carrier, the operation of ONTC by the Ontario Provincial government stands as a shining example of what public ownership of a regional line can accomplish.
The paper mill in Kapuskasing was able to be saved by ONTC in taking over the Northline when CN abandoned the region in 1993, and the subsequent development of the Agrium mine at Opasatika was only possible because that line was still there. Further to that, when ONTC told Lecours in Calstock that they would have to relocate to Hearst for rail access, since the line between Hearst and Calstock had deteriorated to a point where service was impossible, Lecours went after the government for line rehabilitation money. The Liberal government funded the line upgrades through the ONTC and the operation in Calstock was saved. That intervention and subsequent economic benefit to the locality was only possible because it was a public operator in charge.
If stakeholders want to have maximum control over the transportation of the ore, and the jobs associated with it, they need to find a way to ensure a public railway operator is found. Luckily, such a plan already exists and is awaiting evaluation by the Ontario government. It is the "New Deal" involving the James Bay Lowlands Port Authority and it is gaining support from stakeholders in the region.
ONTC is already subject to federal rail legislation and the port authority concept, clarifies the federal government's role in a provincial rail company. The federal/provincial relationship in the oversight of ONTC has led to confusion in the past, and this plan overcomes that. The fact that the plan has First Nation support also puts it well ahead of any other in a situation where further delay will have devastating ramifications.
The Ontario government needs to step up to the table and participate in making this plan a reality to give real impetus to an economic recovery that has thusfar refused to ignite.
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