Like it or not clf / not / kwg are all linked to same issues and it all boils down to transport ... If not wants to mine they MUST get kwg on line with east / west or it will not be mining ? Economical best bang for all is the north / south for profits ... Mining watch environmental people put out a new letter to the government in the fall questioning the route noront wants ? Extra Kms means extra pollution with extra trucking
Ring of Fire debacle shows why big mineral discoveries can be worth so little
Peter Koven | December 27, 2013 | Last Updated: Dec 30 9:59 AM ET
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THE CANADIAN PRESS/Ryan RemiorzDevelopment of the Ring of Fire feels almost as distant today as it did when it was discovered six years ago. Above, canoes are stacked for the winter as the sun rises on the Fort Hope First Nation, Ont.
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The headline from Queen’s Park was loud and clear: Thousands of jobs coming to Northern Ontario, the provincial government announced in a breathless press release back in May of 2012.
The statement went on to explain that U.S. miner Cliffs Natural Resources Inc. will spend US$3.3-billion to develop a chromite mine and related infrastructure in the Ring of Fire, a vast mineral discovery in the remote James Bay Lowlands. This investment would lead to a “new generation of prosperity” in the North, the government claimed.
“When you read it, it sounded like the mine was about to open,” said Progressive Conservative MPP Norm Miller, the party’s mining critic.
Of course, it wasn’t exactly right.
What Cliffs actually said is that the Chromite project was moving on to the feasibility study phase, and the company had preliminary agreements with the government on certain aspects of it.
The rest of the story is well known. Talks with the province stalled after Dalton McGuinty resigned as premier. Chromite prices dropped. Cliffs lost a key infrastructure ruling from Ontario’s mining and land commissioner. And five weeks ago, the company suspended all work on the project.
As a result, development of the Ring of Fire feels almost as distant today as it did when it was discovered six years ago.
When politicians from Ottawa and Queen’s Park discuss the Ring of Fire, they often point out that it could hold $60-billion of minerals. But the debacle with Cliffs points to an equally important truth: that without a credible infrastructure plan, billions of dollars of capital, and firm agreements with government and local stakeholders, remote deposits like the Ring of Fire are worth approximately Zero. In that scenario, the Ring of Fire is not a mining centre; it’s just a swamp.
As Ring of Fire called off, Thunder Bay teeters between boom and bust
Major U.S. player pulls out of Northern Ontario’s Ring of Fire, indefinitely suspending chromite project
Cliffs Natural Resources makes right move with Ring of Fire pullout – RBC
While many Ring of Fire stakeholders would disagree with that assessment, the market certainly supports it. Cliffs, along with the numerous junior miners in the Ring, are getting virtually no value from investors for these projects, as there is no confidence they will get developed anytime soon. In Cliffs’ case, analysts were mostly relieved when the project was put on ice.
A couple of years ago, Ring of Fire deposits were being valued at hundreds of millions of dollars by over-eager investors. They were captivated by the fabulous drilling results, and not focusing enough on the logistical challenges and the underlying economics of the projects. Today, one could argue that the opposite is true: investors are completely focused on the challenges and scarcely thinking about the value of the resources.
This issue is not limited to the Ring of Fire. Other remote, large-scale, politically challenging projects across the world are getting heavily discounted by the market. Some of them, like the Livengood gold project in Alaska, don’t make sense anymore because of falling commodity prices. And the recent track record of companies trying to develop them is pretty bad. Just look at Pascua-Lama, Barrick Gold Corp.’s misadventure in the Andes that was supposed to cost US$3-billion… and then US$5-billion… and then US$8-billion… and then US$8.5-billion… and goodness knows what next.
Even the Toronto Stock Exchange, always a friendly home for mining companies, is concerned about logistical and infrastructure constraints in the sector. It recently clarified a rule stating that emerging miners need to provide a credible infrastructure plan to access remote deposits, or they will not be able to graduate from the Venture exchange to the main TSX, where capital is much easier to come by. It is a serious hurdle for Ring of Fire companies in particular.
Despite the challenges with these projects, it is worth remembering that resource companies have overcome much tougher logistical challenges in the past, and they will continue to do so going forward. In the Ring of Fire, for example, prospects could turn on a dime in 2014 if the provincial government can reach key solutions involving infrastructure and First Nations negotiations.
Ever since the Cliffs suspension, blame has been tossed at the company (for allegedly mismanaging the project), and the province (for taking so long to reach agreements around the project). However, neither side can be blamed for being cautious. This is an enormous mining region that will be in operation for decades, and they want to make sure they get every detail right to avoid problems down the road.
But the overwhelming challenges around the remote project suggest a way for everyone to go about it: start small. Then the issues do not seem quite so overwhelming.
That is how Al Coutts, the chief executive of Noront Resources Ltd., sees it. He understands the government’s desire to have absolutely everything mapped out before the first pile of dirt is excavated. That would clear the way for Cliffs (or someone else) to build a giant chromite mine. But he thinks the region would be better served by opening a couple of smaller, manageable operations and getting a bit of success under its belt first. One of those could be Noront’s Eagle’s Nest deposit, a base metal project with a far smaller footprint than the massive operation that Cliffs is talking about. Noront is also proposing an east-west all-season road that is not as controversial as the north-south proposal that tripped up Cliffs.
“I think that’s the quandary. Do we kickstart this thing with a base hit or do we swing for the fence off the bat?” Mr. Coutts asked. The base hit makes sense, he said, noting it would create some immediate jobs and revenue.
These projects become much easier to finance if they don’t cost billions of dollars. And it is easier to get permitting and obtain First Nations support if they don’t leave a massive environmental footprint. A couple of small successes could embolden all the stakeholders to tackle the larger infrastructure challenges that a big chromite mine presents.
And from a share price perspective, if investors can see a credible path to development for remote projects in the Ring of Fire and elsewhere, they have no reason to value them so cheaply anymore. Until then, they seem content to keep them exactly where they are.