One of the surprises of the year that in some ways isn’t such a big shocker is Cliffs Natural Resources’ announcement this past week that it is suspending work at its $3.3-billion Black Thor chromite project in northern Ontario’s Ring of Fire camp.
The Cleveland-based iron ore and met-coal giant says it’s suspending environmental assessment (EA) activities for the project “due to delays related to the environmental assessment process, land surface rights and negotiations with the Province of Ontario.”
Cliffs goes out of its way to point out that it believes support for the project is somewhat lacking in the province, stating that “certain critical elements of the project’s future are not solely within our control and require the active support and participation by other interested parties.”
The sticking points the company lists are: delayed approval of the terms of reference for the provincial EA process; uncertainty regarding the federal EA process due to a judicial challenge by impacted First Nations; unresolved surface rights issues following a February 2013 Mining and Lands Commissioner hearing; and unfinished agreements with the Ontario government.
What is unstated, of course, is that with iron ore and coal prices diving in the last couple of years and its stock down 54% this year, Cliffs is under extreme pressure to constrain its capital expenditures wherever it can in its global empire. For development projects of all shapes and sizes, that means delay, delay, delay.
And the markets gave their hearty approval of the suspension decision, with a 5.6% rally in Cliffs’ stock on the day.
Because the timing is so convenient with its cost-cutting agenda, Cliffs’ Ring of Fire suspension does have a bit of a phony, emotional blackmail feel to it.
At the same time, however, the project has indeed been beset with blockades from at least six First Nation groups, a certain timidity by the provincial government in dealing with First Nation issues and wildly outsized expectations as to its economic and environmental impacts.
Some of the worst damage in terms in terms of creating false expectations was done by the now-retired Ontario Premier Dalton McGuinty. While his personal interest in the area’s mineral development is appreciated by miners — including an impromptu meeting to discuss mine development with Prime Minister Stephen Harper at a hotel in Toronto — the rhetoric did tend to get overblown, with McGuinty writing to Harper that the Ring of Fire “has the potential to rival Alberta’s oilsands.”
And so we’d get stories in the Toronto Star with openers like, “Premier Dalton McGuinty hopes a massive northern ore deposit will be the motherlode for Ontario’s economy, but critics are warning of an environmental disaster akin to the Alberta tar sands.”
In reality, despite its relative rarity, chromite is about as economically significant in the global minerals industry as black pepper is in a gourmet restaurant — omnipresent but not the main focus, and negligible as a money-maker. Chromite’s useful, but the world isn’t sitting on edge, breathlessly wondering what Ontario will do with its chromite resources.
Again, we get back to the old rookie mistake of mixing up in-situ value with true value: a body of rock with $10-billion worth of minerals is only worth $1 — not $10 billion — if it costs $9,999,999,999 to dig up and process.
With the various Ring of Fire deposits, we’re nowhere near determining their total true value, despite their large, defined tonnages.
Cliffs’ broad, big-ticket development plans in the Ring of Fire include spending $600 million to build a road up to the site — a critical component that a host of junior miners in the camp are counting on to open up the area.
And so the juniors tried to make the best of the bad news. For instance, Noront Resources says that its Eagle’s Nest project is still “good to go,” touting its proposal for an east–west access that builds on winter road infrastructure to minimize cost and impact, rather than Cliffs’ north–south vision.
KWG Resources has had its own beef with Cliffs, having recently gone to trial against the major over road and rail access in the area, and fighting to have the provincial government grant it any cabinet-level mineral processing exemptions that Cliffs may get.