Cliffs Natural Resources Inc. of Cleveland, Ohio, announced that its affiliate, Cliffs Chromite Ontario Inc., will suspend indefinitely its Chromite Project in Northern Ontario by the end of the fourth quarter of 2013. The Company determined that it will not allocate additional capital for the project given the uncertain timeline and risks associated with the development of necessary infrastructure to bring this project online. In June of this year, Cliffs suspended the related environmental assessment activities because of pending issues impeding the progress of the project. The Toronto Star reported that other factors leading up to Cliffs’ decision included delays in approving terms of reference for the environmental assessment, and failure to negotiate a favourable long-term price for electricity.
“We continue to believe in the value of the mineral deposits and the potential of the Ring of Fire region for Northern Ontario. As we’ve assessed the current challenges in the region and the costs to continue on the current path, we decided to suspend the Chromite Project indefinitely,” said Bill Boor, Senior Vice-President, Strategy & Business Development. “Unfortunately, we will reduce the project team staffing and close our Thunder Bay and Toronto offices as well as the exploration camp site. We understand this is a hardship for our employees and their families. During this transition, we will be working with this talented team of professionals to explore other opportunities at Cliffs.”
The Company stated that the technical project work including feasibility study, development and exploration activities are being halted and there is no restart date planned. Cliffs will continue its work with the Government of Ontario, First Nation communities and other interested parties to explore potential solutions related to the critical issue of infrastructure for the Ring of Fire region. Environmental Assessment activities will remain suspended. The Company is supportive of the Province’s intention to form a Development Corporation structure for the financing and development of infrastructure, and intends to participate in future discussions.
Michael Gravelle, Minister of Northern Development and Mines, issued a statement on Cliffs’ decision in which he said that “Our government is committed to smart, sustainable, and collaborative development in the Ring of Fire and this development is about more than one company. It is a multi-generational economic opportunity for this province with known mineral potential worth $60 billion and represents one of the largest known deposits in the world. While I am disappointed with Cliffs’ decision, and certainly appreciate the company’s continued interest in the project, our commitment is clear. The province is prepared to invest in vital infrastructure and create the right climate to support development in the region. We will work with key partners to realize these shared benefits.”
The capital investment for industrial infrastructure is expected to be up to $1 billion, plus another $1.25 billion to construct all-season access roads to the remote region 500 kilometres northeast of Thunder Bay. The Toronto Star reported that Ontario is seeking private and public partners, especially the federal government, to create the infrastructure to develop the area.
Cliffs’ project would consist of mining chromite in Ontario’s Ring of Fire area, hauling it to a purpose-built smelter to be constructed in Thunder Bay for conversion into ferrochrome, and shipping chromite concentrate and processed ferrochrome to world markets by rail and via marine transport. In the April 16, 2012 issue of Canadian Sailings, it estimated that commencement of production would make Canada a major exporter of chromite concentrate and ferrochrome, supplying 4-10 million tonnes annually into a global market whose total size was estimated at about 25 million tonnes. Ferrochrome is primarily used to produce stainless steel. Mining experts had stated that there is enough tonnage in the McFauld’s Lake deposits to see chromite production last from 150 to 200 years.
The suspension of this mining project represents a giant lost opportunity to provide employment in the area, to add to Ontario’s Treasury, and to provide economic independence for the First Nations that reside in the area. Undoubtedly Cliffs will return to the area once intervention by the two levels of government and consultations with First Nations have resulted in clarity regarding outstanding issues.
RBC Capital Markets Managing Director analyst Fraser Phillips says Cliffs Natural Resources made the right move in pulling out of the chromite project since the project would have taken years to develop and the decision removes an uncertainty lurking over its shares. The project required ferrochrome prices of $1.40/lb. to produce an internal rate of return in the 14 per cent-17 per cent range, but with prices closer to $1, Phillips believes the project economics were “questionable at best.”