Cliffs mine shutdown slows plans for mineral development in Canada's Ring of Fire

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

TORONTO — Cliffs Natural Resources is postponing a $3.3 billion project in Ontario, threatening development of the mineral-rich Ring of Fire area once described as Canada's most-promising mining region.

Cliffs plan to mine chromite, an ingredient for making stainless steel, was among the most advanced in the Ring of Fire, the horseshoe-shaped deposit about 1,000 kilometers (622 miles) northwest of Toronto and named by a mining executive after the Johnny Cash song. Other companies working in the area include Noront Resources and KWG Resources, both headquartered in Toronto.

At stake is development of Northern Ontario, an area about twice the size of California, and projects to mine copper, nickel and chromite. In 2010, former Ontario Premier Dalton McGuinty called the Ring of Fire "the most promising mining opportunity in Canada in a century," and Michael Gravelle, the province's mining minister, values the Ring of Fire's mineral potential at C$60 billion ($57 billion).

Cliffs' decision is going to have "a huge impact on the development of the Ring of Fire," Michael Mantha, an opposition New Democratic Party member from northern Ontario, said in a telephone interview. The provincial government hasn't established a clear framework for developing the Ring of Fire, he said. "It sends the wrong message to the rest of industry."

Exploration and technical work at Cliffs' project will stop by the end of the year and company offices in Toronto and Thunder Bay, Ontario, will be shut, the Cleveland-based company said in a Nov. 20 statement. Cliffs blamed "risks associated with the development of necessary infrastructure" as metals prices slumped this year and Goldman Sachs Group Inc. forecast declines next year.

"When the macroeconomic conditions are tough, and you're facing infrastructure constraints also, it becomes a double whammy," Mitesh Thakkar, an analyst for FBR Capital Markets in Arlington, Virginia, said yesterday in a telephone interview.

Cliffs, the biggest U.S. iron-ore producer, calls its chromite deposit North America's largest. The company said in January 2012 the estimated total cost to develop the project was $3.3 billion, including mine development, a processing plant and transportation infrastructure.

Cliffs has had challenges advancing the project. In June, the company suspended an environmental-impact evaluation, citing delays in negotiations with the provincial government and uncertainty over the environmental review process because it was being challenged by native groups in the area.

Cliffs received a further setback in September when the Mining and Lands Commission of Ontario ruled against the company's proposal for an all-weather road to transport ore that would cross claims of KWG Resources.

KWG Chief Executive Officer Frank Smeenk said the challenges faced by Cliffs may actually help spur resource development in the region because they've prompted the provincial government to establish a development corporation to solve a lack of transportation infrastructure.

"There are risk items here that companies have no control over," Smeenk, whose company has a 30 percent stake in Cliffs' Big Daddy project, said yesterday by phone.

A Cliffs spokeswoman said her company has spent $500 million on the project.

"With that level of spending and no certainty around the infrastructure, we just couldn't continue," Patricia Persico said yesterday in a telephone interview.

The land commission decision to not approve the road may have been a "show stopper," she said.

First Nations are in favor of developments like Cliffs' as long as they are consulted and there are tangible benefits for their people, said Harvey Yesno, the Grand Chief of the Nishnawbe Aski Nation, a political group representing 49 First Nations' communities in northern Ontario.

"In some ways, Cliff's decision may just be a reprieve to address some of the infrastructure issues," Yesno said yesterday by phone.

"There's no question it's significant," Gravelle, Ontario's minister of northern development and mining, said yesterday by phone, referring to Cliffs' decision. While the company played a big role in the Ring of Fire, there are other players in the region that can step in, he said.

"The Ring of Fire project will move forward," Gravelle said.

Canada "remains committed to working with all our partners for the benefit of sustainable growth in northern Ontario," Greg Rickford, the federal minister responsible for the Ring of Fire and development in northern Ontario, said yesterday in a statement.

Cliffs declined 2.9 percent to $26.43 yesterday in New York, while Noront fell 9.1 percent and KWG was unchanged in Toronto.

Cliffs said last month that third-quarter net income rose to $104.3 million, or 66 cents, from $85.1 million, or 59 cents, a year earlier. Revenue increased 0.1 percent to $1.55 billion.

Gold, iron ore, soybeans and copper will probably drop at least 15 percent next year as commodities face increased downside risks even as economic growth in the U.S. accelerates, Goldman Sachs said in a Nov. 20 note.

The risks are strongest for iron ore and follow increases in supplies, analysts including Jeffrey Currie wrote in a report. Price pressures will mostly become visible later in 2014, the analysts wrote, forecasting that bullion, copper and soybeans will decline to the lowest levels since 2010.

Cliff's decision is a setback for the Ring of Fire, but it is only temporary, said Stan Sudol who runs, a blog focusing on mining in northern Ontario.

"Ore in the ground doesn't rot," Sudol said. "It will still be there a year or two from now and I think once all governments come together and decide this is the route we're going to do with transportation, then the project will get new wings."

Noront vowed to continue developing its Eagle's Nest nickel, copper and platinum-group project in the Ring of Fire. The project isn't dependent on other companies, Noront said in a Nov. 20 statement.

Cliffs' decision is a wake-up call, Noront Chief Executive Officer Alan Coutts said yesterday by phone.

"A move such as this might focus attention in the right way," he said.

_ With assistance from Phoebe Sedgman in Melbourne, Liezel Hill in Johannesburg, Christopher Donville in Vancouver and Sonja Elmquist in New York.