Crummy chromite investment

http://www.mineweb.com/news/industrial-metals-and-minerals/crummy-chromite-investment/

Cliffs exits the Ring of Fire.

So ends Cliffs Natural Resources’ adventure in Northern Ontario with the miner announcing that it has a buyer for its Canadian chromite projects. It was an expensive one.

A half-decade ago Cliffs paid some C$350 million in cash and shares to buy majority control of a series of then newly discovered chromite deposits. They were heralded as world-class with potential to supply the North American steel markets especially.

In 2009 and 2010 Cliffs struck deals to buy the juniors involved in the discoveries. It bought Freewest Resources for about C$240 million (in shares at the time). Then it bought up Spider Resources in 2010 for C$125 million (cash).

These were the juniors that put the region on the map – the so-called Ring of Fire. The potential was often billed as huge – a nebulous ~$60 billion or so in deposit value.

The region garnered promises from the Ontario government especially for major spending on infrastructure. For it was remote and would require new road access hundreds of kilometres long through bush and First Nations territory.

Undaunted, Cliffs proceeded to spend another C$200 million or so advancing the projects closer to the point of construction, which was to be a multi-billion dollar enterprise. Cliffs planned to mine around 4 million tonnes of ore a year and then upgrade it to ferrochrome at a Sudbury-based facility.

But Cliffs quickly lost patience with the endeavour. Just three years after shelling out hundreds of millions of dollars in cash and share value for the projects, it put a stop to development.

It highlighted issues with infrastructure and negotiations with First Nations. But also problematic were the realities of stagnant chromite prices and poor project economics in remote Northern Ontario. And meantime with iron ore prices falling, so too were Cliffs’ earnings.

So Cliffs wound down investment in the chromite projects in 2013, cancelling a feasibility study. Then last year it became clear it would sell the projects altogether while it also reassessed its money-losing Bloom Lake iron ore mining operations in Quebec, Canada, which it shuttered.

Now, some half-billion dollars later, Cliffs is selling its stake in the chromite projects to Noront Resources for a small fraction of what it sank into it: C$20 million.

Noront – which five years ago had battled Cliffs for Freewest in a bidding war – now controls much of the chromite deposits along with quite a lot of prospective ground.

You may reasonably wonder if its desire for the ground lies as much in the chromite deposits as it does beyond. To do the deal Noront is getting a long-term, reasonably low-interest loan from Franco-Nevada, which in turn also gets wide-ranging NSRs over the newly acquired ground.

For Cliffs the sale brings to an end a much-hyped chapter about the profitable possibilities of bringing Northern Ontario chromite to market. That is to be a great challenge for whoever tackles it.