Junior miner Noront Resources (TSXV:NOT) made headlines Wednesday by closing its acquisition of the McFaulds Lake exploration camp and associated equipment, located in Ontario’s highly prospective Ring of Fire.
Former owner Cliffs Chromite Ontario, an affiliate of Cliffs Natural Resources (NYSE:CLF), announced in late 2013 that it would be indefinitely suspending work at its chromite project in that area, so the sale isn’t surprising. However, that doesn’t mean it isn’t a significant move.
Noront in, Cliffs out
According to Financial Times writer Peter Koven, who wrote about the transaction back in May, when it was first brought to light, it’s important for two reasons. First, he said, it reaffirms the fact that Cliffs “has other priorities.”
Second, Noront’s statement that it plans to “use the camp as its construction base for the development” of its Eagle’s Nest nickel–copper–platinum–palladium project shows it is “committed to developing” that property.
Almost five months later those statements have been underscored even further. Cliffs, after all, has since lost a protracted battle with so-called activist investor Casablanca Capital. The dispute centered on the latter’s belief that US-based Cliffs should spin off its international assets, and since it ended, newly appointed CEO Lourenco Goncalves has remained adamant that those properties have to go.
Meanwhile, Alan Coutts, Noront’s president and CEO, has made it abundantly clear that his company is not only devoted to Eagle’s Nest, but also to the Ring of Fire as a whole — specifically, the company would like to get its hands on Cliffs’ chromite project. “If we don’t get a call from the new [Cliffs] management, we’ll be phoning them,” Koven quotes him as saying in an August article. More recently, Coutts told CBC News, “Noront believes in the potential of the Ring of Fire, and would be interested in acquiring the Cliffs assets at the right price.”
Coutts’ comments might seem a little pushy, but a quick look at Noront’s background shows why he’s being so forward. As Koven points out, the company made the first major discovery in the Ring of Fire, and back in 2009 “tried to acquire much of the land in the Ring of Fire that Cliffs currently controls.”
While that didn’t pan out, Eagle’s Nest has given Noront a presence in the area, as has the company’s Blackbird chromite project. The former is due to achieve commercial production “in and around 2016/2017,” according to the company’s website, while Noront is looking at “establish[ing] the economic value and a strategy for future development” for the latter.
The Cliffs project’s attributes don’t hurt either. The company’s most recent presentation on it states that an open-pit mine would produce an estimated 3.7 million tonnes per year of crude ore, with a processing facility then putting out as much as 2.3 million tonnes of “lump and fines chromite concentrate” during the same period.
Competing for chromite
Given those qualities, it’s unsurprising that Noront isn’t the only company eyeing Cliffs’ chromite project — executives at KWG Resources (TSXV:KWG) have been just as vocal as Coutts in terms of showing interest in the project.
For instance, Moe Lavigne, the company’s vice president of exploration and development, told CBC News that in an August discussion “Cliffs expressed that they are sellers of their assets in the Ring of Fire and they wanted to know if we were potential buyers.” The answer, of course, was “yes.” Lavigne added that KWG is trying to get money together to make a purchase.
More recently, Frank Smeenk, KWG’s president and CEO, explained to Ian Ross of Northern Ontario Business, “I’m trying to persuade [Cliffs] that KWG can be the (development) vehicle, that it might be opportune for (us) to be their partner of choice.”
Those comments sound fairly promising, but based on Ross’ article, ”persuade” may be the key word. While Cliffs and KWG both hold stakes in the Big Daddy chromite deposit, their partnership has included some troubled times, largely due to KWG’s efforts to deny Cliffs surface access to a “corridor of mining claims, set aside for a future north-south railroad” to the Ring of Fire. The companies are still in court over the issue.
That said, it’s worth noting that KWG has some heavy hitters hoping for its success in the Ring of Fire, where it also holds an option to earn an interest in production from the Koper Lake project. The company recently announced that two companies have expressed interest in creating strategic alliances with it. One would see a global steel company provide project engineering, construction and marketing expertise and could lead to KWG “build[ing] a facility to produce custom-made stainless steel billets for global export to stainless steel makers.” The other proposal, from a large ferrochrome producer, “propose[s] a strategic marketing alliance for the global charge chrome market.”
Ultimately those proposals, which “are being developed based on the commercial potential of [KWG’s] new method of refining chromite ore into ferrochrome” using natural gas, could lead to offtake agreements, which certainly sounds promising for the company’s prospects.
Whether Noront or KWG will reign supreme remains to be seen; in fact, investors would do well to note that it’s possible neither will gain the upper hand in the Ring of Fire. There’s been some speculation that it will take a major miner — not a junior — to move the project forward. On the same note, Cliffs has not given a timeline for the sale of its international assets.
Furthermore, the Ring of Fire’s infrastructure issues should not be forgotten. Cliffs’ 2013 suspension of work at its chromite project was largely based on uncertainty regarding infrastructure, and since then government efforts to help solve that problem have been fairly lackluster. Any company picking up Cliffs’ project will thus have to contend with that drawback as well.
Nevertheless, it will be interesting for investors to watch the moves of all three companies, especially as Cliffs’ new management gets into the swing of things.
Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.