PDAC 2014: In Ring of Fire, Cliffs remains elephant in the room

TORONTO – In Northern Ontario’s Ring of Fire, Cliffs Natural Resources Inc. remains the elephant in the room that no one wants to talk about.

A Tuesday lunch panel at the Prospectors and Developers Association of Canada (PDAC) convention focused on the giant undeveloped deposit in the James Bay Lowlands and what has to be done to move it forward.

There were some encouraging comments in that regard from former premier Bob Rae, who is representing the Matawa Tribal Council in its negotiations with the province over Ring of Fire development. He said the two sides are “making good progress at the bargaining table,” and he is optimistic that they will reach a framework agreement soon. That is good news for all involved.

But the panel largely ignored the broader questions investors have about the Ring of Fire: Does it make economic sense for a major mining company to invest the capital required for this highly remote project? And do any of them want to?

Those concerns came to the forefront last November, when Cliffs suspended all work on its Chromite project in the Ring. Some analysts said this was a smart move given the high risk and potentially low returns associated with the project.

The PDAC panel chose not to address this. Apart from being mentioned once in passing, the word “Cliffs” never crossed the mouths of any of the speakers.

Mr. Rae was the one speaker who addressed the question of whether a large mining company can generate a decent return from the Ring of Fire. He pointed out that financing is a major challenge, and there are concerns across the sector that mega-projects are not viable right now. He said he has heard plenty of “business realism” in his conversations at the PDAC conference.

“If you look at the decisions boards of directors of major companies have made, they’ve been very clear that these huge mega-projects have to be thought through,” he told reporters.

The Ontario government hopes senior miners will take a greater interest in the Ring of Fire once critical questions around infrastructure and First Nations agreements are resolved. Those issues are taking a very long time to work through, but the government maintains progress is being made.

Panelist Josh Hjartarson, vice-president of policy and government relations at the Ontario Chamber of Commerce, said there was urgency to get moving quickly with development of the Ring of Fire. He noted Ontario is facing challenging economic times and that the project would bring critical benefits.

Last month, his chamber released a study that suggested the project would generate up to $9.4-billion of GDP in its first 10 years of operations, and more than $25-billion over 32 years.

“Let’s move. Let’s get going. Prudently. But let’s get going,” he said.