Accent: Ring of Fire - Miles to go before we dig

Stan Sudol, for The Sudbury Star

 

It may be a cliche, but over the past six months, how things have changed and how they've stayed the same in the Ring of Fire.

There may be some ongoing activity or discussions behind the scenes, but without a doubt, the declining state of the global economy, First Nations issues and Ontario politics seem to have halted any progress on a variety of issues.

First let's look at the fragile nature of the world economy. The U.S. is still struggling; Europe is worse, with skyrocketing unemployment rates in many countries; and China's past double-digit expansion is gone. It is estimated that their economy will "only" grow 7% this year.

The price of commodities and the value of resource companies have plummeted.

Many mining projects are being put on hold or cancelled, while layoff notices are being handed out. Funding for junior exploration companies -- the source of future discoveries like the Ring of Fire -- has become almost impossible to find, putting many on life support.

The stock price of Cliffs Natural Resources has plummeted from US$100 per share a year and a half ago to a little under US$30 recently.

Cliffs has publicly stated that they are looking for a partner to help develop their Northern Ontario chromite deposits. Recently, the company has put their Bloom Lake iron ore expansion project in Quebec's Labrador Iron Trough on hold and stopped production at two of their U.S. iron ore mines.

There is also rampant speculation that Cliffs -- which only operates in politically stable countries like the U.S., Canada and Australia -- is a prime takeover target.

Recently, the Glencore-Xstrata merger has been given the green light by shareholders and European regulators. Xstrata is the world's largest producer of chromite from their extensive operations in South Africa. That country supplies almost half the global demand of this vital ingredient for stainless steel and many other strategic uses, including critical military applications.

Last summer, the labour strife and the violent deaths of many miners in South Africa -- the Marikana Massacre is where 34 workers were killed on August 16 -- started in the rich platinum-mining region of the Bushveld and had spread to many other mines throughout the country. The Bushveld is also the source of South African chromite production and many other minerals.

The country has one of the widest gaps between the very rich and poor. While the violence and strikes have subsided, there is still much tension in the mines and many fear that if their standard of living does not significantly improve, the political stability of the entire country may be at risk. And the more militant youth wing of the ruling ANC party continually calls for the nationalization of some parts of the mining sector.

With the strategic value of chromite, South African political uncertainly and the very low value of Cliffs' stock, is Glencore/Xstrata thinking about swallowing the cash-strapped U.S. miner? They are certainly big enough, as the merger has made Glencore/Xstrata the fourth largest international miner after BHP-Billiton, Vale and Rio Tinto. Or would one of the other major miners want to take over Cliffs and establish themselves in the chromite game, becoming the new 'King of the Ring' as well as acquiring that company's valuable iron ore and coal deposits. Many people feel that Cliffs will not be the company digging chromite out of the ground in 2016, their revised timeline for mining production to start.

Considering the strength of the financial downturn, First Nations political and social issues, on top of the environmental and transportation challenges , one wonders if Cliffs' management is dreaming in technicolour if they think they will meet that new starting date.

I am betting on 2019 or 2020. And a warning to Sudbury politicians to not count your chromite eggs just yet: If Cliffs is taken over, the new company will surely reassess all previous decisions and that ferrochrome facility might end up elsewhere. Stay tuned, as it will be a very interesting 2013.

THE COMMODITY SUPERCYLE IS OVER?

Of course, with all this economic uncertainty, the financial bears are coming out of the woods. Many newspaper headlines are screaming that "the commodity supercycle is over." Don't believe it for a minute. From the end of the Second World War and the early 1970s, we went through a previous commodity supercyle as we rebuilt Europe, the U.S. and Canada boomed and Japan, South Korea and other smaller Asian tigers industrialized. However, the demand for commodities did not go up in a straight line.

That was painfully evident here in Sudbury, where we experienced the traditional boom and bust cycles of the mining sector. The old Inco would lay off 2,000 workers and a year or two later, rehire them.

In addition, China is experiencing the largest rural to urban migration of people in human history. India, Latin America and Africa will be following. Metal consumption is an integral part of the urbanization process, as a growing middle class wants indoor plumbing, electricity, cars, subway systems, appliances and other services or products that require vast quantities of metal.

Even Bank of Canada Governor Mark Carney stated in a September speech, "Rapid urbanization underpins this growth. Since 1990, the number of people living in cities in China and India has risen by roughly 500 million, the equivalent of housing the entire population of Canada every 18 months. Despite the current sharp, cyclical slowdowns in China and India, this secular process can be expected to continue for decades."

ONTARIO POLITICS AND FAR NORTH ACT

Now let's focus on the lack of leadership in Ontario. Premier Dalton McGuinty's unexpected decision to step down has basically frozen all major decisions in the Ring of Fire. Regardless of who becomes the new Liberal leader -- a Toronto Sun editorial quipped that this process is like "putting lipstick on a pig" -- Ontario will likely hold a spring election.

Considering the current stalemate or lack of progress in the Ring of Fire, especially with First Nations communities, and Ontario's dismal economy, the new premier must give this file the attention it deserves. Two quick early "wins" to signal that he or she respects Aboriginal concerns and recognizes the huge economic opportunities from this project would be the creation of a stand-alone Ministry of Aboriginal Affairs inside the provincial cabinet and making significant changes to the much-detested Far North Act.

Until Kathleen Wynne announced that she was running to become the new Liberal leader, she was the Minister of Municipal Affairs and Housing as well as Aboriginal Affairs. When I worked at Aboriginal Affairs in the late 1990s -- then known as the Ontario Native Affairs Secretariat -- the Attorney-General was responsible for this ministry. There are many serious First Nations issues around land claims, resource revenue sharing and social and educational challenges, just to name a few. The Ministry of Aboriginal Affairs deserves its own full-time minister.

The Far North Act is detested by both Aboriginal and non-Aboriginal people across Northern Ontario. However, there are some good initiatives being done under this Act, especially with community-based land-use planning. So instead of throwing out the baby with the bathwater, make a few strategic changes. First, eliminate the requirement that 50% of the Far North should be turned into parks. First Nations communities are still angry that the powerful southern environmental movements forced this provision on them. Let the Aboriginal communities decide how much of their traditional territories should be off-limits to sustainable resource development.

Furthermore, according to the act, no new resource development can occur until the communities have completed their land-use plans. It will take years, if not a decade or longer, for some who may not have the financial or human resources to complete these plans. Change that provision so First Nations that have been adequately consulted can allow resource projects to proceed even if the land-use plans are not completed.

VISIT FINLAND CHROMITE OPERATIONS

Another way to build enormous trust and allay environmental concerns among the Ring of Fire communities is to bring the chiefs, some of their councillors and a few elders from each First Nation on a trip to the highly efficient Kemi chromite open-pit mine in Finland and a nearby ferrochrome facility in the town of Tornio. Finland has one of the highest standards of living in Europe, has a mining culture similar to Canada and is as environmentally conscious.

On the way back, this group could visit the very successful nickel mining operations in Labrador, Newfoundland and northern Quebec operated by Vale and Xstrata Nickel respectively. Both projects partnered with the local Aboriginal or Inuit communities, whose members make up significant percentages of the workforces and have also created many indigenous businesses that supply the mines.

The Ontario government should take the lead with this proposed initiative.

Stan Sudol is a Toronto-based mining analyst and communications consultant and owner/editor of the RepublicOfMining.com website.