Lighting a Fire on Cliffs Natural Resources Ring of Fire Chromite Project?

Because of competing interests and parochial biases, the vast potential of Ontario's Ring of Fire mineral development project lays dormant, but the provincial government may yet break the logjam holding progress back as it lays the foundation of a road map for the way forward.

Come on, baby, light my fire
The Ring of Fire is a vast but remote region in northern Canada in the James Bay lowlands, currently only accessible via a two-hour flight from Thunder Bay, the nearest major city. Current estimates suggest it holds the largest deposit of chromite ever found in North America, as well as significant production possibilities of nickel, copper, and platinum, which is worth some $60 billion all told. Chromite is a key ingredient in the manufacture of stainless steel.

Chromite. Source: Wikimedia Commons

Cliffs Natural Resources (NYSE: CLF  ) is one of the primary players in the Ring of Fire, but as might be expected with any such potentially lucrative claim, the competing interests are holding out for their own positions to the detriment of them all.

Road to nowhere
The primary hurdle that needs to be overcome is access to the region. Because of its remoteness, there is no infrastructure to bring equipment in or ore out, but each party has its own idea about how best to realize that goal. Cliffs proposed the construction of an all-weather, north-south, ore-haul road, while others propose a railroad, while a third suggests an east-west road. The problem is there can only be one passage built, and no one is willing to bend in their demands.

Cliffs' all-weather road had the additional problem of cutting across the land claims of its rival that wouldn't cede access to it since it would interfere with its ability to work its own claim. But with the backing of the Ontario government for financial assistance of its plans, Cliffs appealed to Canada's Mining & Lands Commission for an easement so it could reach its project, but was ultimately rejected. With all parties intractable, though, Cliffs announced last year it was indefinitely suspending further development of the proposed $3.3 billion open-pit mine.

Miners in other regions face similar problems, including Barrick Gold (NYSE: ABX  ) and its well-known issues at its Pascua Lama gold mine in Chile, which was indefinitely shut down due to seemingly unsolvable problems in bringing competing interests on board. It's going on three years now since Newmont Mining (NYSE: NEM  ) indefinitely suspended operations at its Peruvian Conga gold mine. Rising costs are also a growing problem, and just this morning BHP Billiton (NYSE: BHP  ) said it would be indefinitely suspending production at its Yarrie iron-ore mine in Western Australia, a region that's been notably hard hit by the economic slowdown in China.

Battle of five armies
Last Friday, the Ontario government announced it hired Deloitte LLP to act as a neutral, third-party resource for everyone involved, including First Nations, the provincial and federal governments, and the industry as a means of achieving consensus building. One of the first tasks will be to assess the merits of each of the infrastructure proposals.

While it sounds hopeful, there's no reason to think it will be any more successful. Last year, it created a development corporation for the region, but that quickly devolved into acrimony over who would pay, and Ontario has charged the Canadian federal government of favoring oil sands development in Alberta over the chromite project. Moreover, the Matawa First Nations Council, the chiefs of the nine First Nations, has a vested interest in the competing projects because the lands are situated on traditional First Nation territories. Not only are they looking to receive a cut of any minerals produced, but they want the development conducted in a sustainable, responsible way that undergoes appropriate environmental assessments. The current framework didn't quite measure up to their standards, and they were forced to go to court to bring the parties to the negotiating table.

With such large chasms facing Cliffs and the other players, despite the hopeful sounding nature of the Ontario government's pronouncement, the chance of anyone achieving consensus in the Ring of Fire will be doused with the cold water of reality.

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