Canadian National puts costly railway line in northern Quebec on ice

MONTREAL - Canadian National Railway has put a costly railway line in northern Quebec on hold midway through a feasibility study, due in part to delays in mining projects because of low iron ore prices.

The Montreal-based railway had been working with several mining companies and the Caisse de depot pension fund on a study into a transportation link for iron ore producers at the Quebec-Labrador border.

CN (TSX:CNR) announced in August that the group was looking at a rail line and terminal handling facility, which analysts estimated could cost $5 billion.

But railway spokesman Louis-Antoine Paquin said Friday that everything now is on pause.

He wouldn't say if the Quebec government's plan to increase mining royalties played a role in the decision.

"It's a bunch of factors," he said in an interview.

"There's a pause because we're evaluating certain timetables and also it has something to do with some projects of mining companies that they seem to have put on hold at the moment."

Paquin wouldn't say how much has been spent on the partially completed feasibility study. The Caisse declined to comment on the decision.

Quebec Natural Resources Minister Martine Ouellet, attending a hearing on spending estimates, was already talking about the project in the past tense.

"CN's project was a private project but funded by the Caisse de depot, which made it kind of a weird blend," Ouellet said.

She insisted access to the region must be fair for all and said a better business model for economic development in the area is needed.

Liberal Jean d'Amour, who was also present at the hearings, took issue with Ouellet's view and said the election of the Parti Quebecois had created a climate of uncertainty in the mining sector.

Rod Cooper, president and chief operating officer of Labrador Iron Mines (TSX:LIM), said last summer that a new terminal handling facility at the Port of Sept-Iles would complement plans for a new dock at the port.

The former Quebec government's Plan Nord envisaged CN and the Caisse developing a new, 800-kilometre line from the port of Sept-Iles to the Labrador Mining Trough, a major growing source of iron ore.

Cameron Doerksen of National Bank Financial had said the project wouldn't likely be operational until 2017-2018 but could provide large revenues for CN. He had estimated the railway could potentially generate $1.5 billion to $2 billion in annual revenues on top of its current total of nearly $10 billion.

Another industry player expected to benefit from the line is railway wood tie supplier Stella-Jones (TSX:SJ).

On the Toronto Stock Exchange, CN's shares were up $1.58 at $97.82 when markets closed Friday.