Tapping Into the Vast Potential of Ontario’s Ring of Fire

- October 2nd, 2012

The region’s massive chromite deposit could be a boon to investors in select mining firms — but getting it to market will be a big challenge.

Ontario Premier Dalton McGuinty has written that the Ring of Fire in the northern part of the Canadian province has the potential to “rival Alberta’s oil sands.”

That’s a bold statement, considering that the oil sands put Alberta third, after Saudi Arabia and Venezuela, in terms of oil reserves.

But it’s not black gold that the crescent-shaped region — named after the Johnny Cash song — contains; instead, it hosts a massive deposit of chromite, a metal that, when refined into ferrochrome, is used to make stainless steel. The Ring, which lies about 500 kilometers north of the city of Thunder Bay, is about 4,000 square kilometers in all — roughly the same size as Rhode Island.

Chromite was discovered rather unexpectedly in the area by KWG Resources (TSXV:KWG). “In 2006, we drilled some holes on the Freewest option and discovered chromite, which was quite intriguing,” company President Frank Smeenk was quoted as saying in an Ontario mining publication. “We were more interested in the platinum and palladium potential, but as we subsequently discovered, we were into what was the very early stages of one of the world’s largest chromite deposits.”

Canada’s political stability adds to the Ring of Fire’s appeal

The Ring of Fire is not the sole chromite deposit in North America, but it is currently the only one that contains enough of the metal to be viably mined. Initial estimates have pegged its value at around $30 billion.

“The Ring of Fire’s chromite deposit has the potential to position Ontario alongside South Africa, Kazakhstan and India, who, together, currently account for more than 70% of the global production of chromite ore,” Andrew Morrison of the province’s Ministry of Northern Development and Mines told The Sudbury Star.

What’s more, companies in the Ring are betting that Canada’s political stability in comparison to those three nations will make it even more attractive to countries that need chromite to fuel their ongoing urbanization — particularly China.

And chromite isn’t the only metal the Ring of Fire contains; it’s also home to deposits of coppernickelzincvanadium, platinum and palladium.

Right now, 23 mining companies hold claims in the Ring of Fire. There are no producing mines in the area yet, but exploration is ongoing. So far, according to the ministry, miners have spent about $278 million discovering and outlining deposits in the region. The company that is closest to production is Cleveland-based Cliffs Natural Resources (NYSE:CLF), which aims to start up an open-pit mine at its Black Thor project in 2016.

Long and costly road is crucial to the Ring of Fire’s development

Before any chromite can be commercially extracted, a number of hurdles must be cleared. Chief among them is a lack of transportation infrastructure. Because of the area’s sheer remoteness, it lacks any kind of ground access and is well off the power grid.

In June, the province said that it is following Cliffs’ recommendation for a 300 kilometer north-south road to connect the Ring of Fire projects to the town of Nakina, where the ore could be loaded onto trains.

“Through discussions with Cliffs, [the company] determined that the north-south corridor was the corridor of choice for them and so that discussion took place and the determination was made,” said Northern Development and Mines Minister Rick Bartolucci.

Other miners in the area, including Noront Resources (TSXV:NOT) had suggested an east-west route, but Noront now supports the north-south option. The province is currently negotiating what role it will take in constructing the road, which is expected to cost $600 million. The government has said it will be a pay-per-use road, but specific details haven’t been worked out yet.

Still, that’s a model that works for Noront CEO Wes Hanson, whose company is developing a nickel-copper project in the Ring. In a recent interview with the National Post, he said,“if you look at us, we’re considering a project right now that will produce about 150,000 tonnes of concentrate on an annual basis … Our shipment export out of the project site represents less than 10% of the total volume on the road. So the model they are proposing … means we would pay somewhere in the range of 10% to use that road, which is very fair and strategically beneficial to our shareholders. In other words, we don’t have to pay 100% of the cost to build that road.”

First Nations involvement is a must

Another important aspect of mining in the Ring that must be addressed is the role that local First Nations will play. Already, many feel that they are being left out of decisions that are being made about the area’s future.

“We need to know what is being said to them — you know, the people who are making the decisions — about what is going to happen in this Ring of Fire,” said elder Emily Jacob of the Webequie First Nation, one of the communities located near the deposit. “We need to know that.”

Currently, six First Nations communities in the area plan to issue “eviction notices” to companies working in the Ring of Fire, though it is not clear how they would be enforced. Still, the move was endorsed by the national Assembly of First Nations at its convention in Toronto in July.

Other First Nations leaders are taking a more conciliatory approach, with a focus on making sure their communities benefit as much as possible from the Ring’s development.

“We get minimum benefits from the ring,” Stan Beardy, Ontario regional chief, told the Toronto Star. “It is such a massive undertaking that it will alter our landscape, our lands, for a long, long time. It is critical we benefit to the maximum from the activity.”

China, too, seems to have recognized the role First Nations will play in the area’s development. A delegation that included the country’s consul general in Toronto recently visited Webequie to open the lines of communication with the community. A Chinese company, Sinocan, is expected to start drilling near Webequie this month.

Four companies with big plans for the Ring of Fire

Here’s a look at four mining firms that are currently developing projects in the Ring of Fire:

Cliffs Natural Resources has begun the environmental permitting process for its $3.3 billion Black Thor project near McFaulds Lake.

Under its current “base case” scenario, Cliffs will build an open-pit mine with a 10- to 15-year mine life at the site, though it says it will also consider an underground mine to recover deeper ore.

The mine will deliver up to 4.4 million metric tons of ore a year to an onsite concentrator, which will crush and process it to produce up to 2.3 million MT of chromite concentrate. The company will then ship the concentrate via the new road to Nakina, where it will be loaded onto trains bound for Cliffs’ planned ferrochrome production facility near Capreol, Ontario, north of Sudbury.

Noront Resources has begun seeking environmental permitting for its Eagle’s Nest project, also near McFaulds Lake. On September 4, 2012, the company released a feasibility study that envisions an underground mine producing 150,000 MT of nickel-copper concentrate annually over the project’s 11-year life.

According to the company’s NI 43-101 compliant resource estimate, the deposit contains 11.1 million MT grading 1.68 percent nickel, 0.87 percent copper, 0.89 g/t platinum and 3.09 g/t palladium.

KWG Resources owns or has interests in copper, zinc, nickel and chromite properties in the Ring of Fire. It is currently exploring for chromite on its claims on the Big Daddy deposit near McFaulds Lake through a joint venture with privately-held Spider Resources. The partners currently own 53 percent of these properties, and their ongoing work at the site will eventually increase that to 60 percent.

According to the company’s 2010 resource estimate, the deposit contains an indicated 23.2 million tonnes averaging 40.66 percent chromium oxide, along with an inferred resource of 16.3 million tonnes averaging 39.09 percent.

Probe Mines (TSXV:PRB) is a base and precious metal exploration firm with 875 claims covering a total of 14,000 hectares near McFaulds Lake. Its Black Creek property is located near the Black Thor and Big Daddy deposits. The company’s NI 43-101 compliant resource estimate on Black Creek shows a measured and indicated 8.645 million tonnes averaging 37.41 percent chromium oxide plus an inferred 1.6 million tonnes averaging 37.78 percent chromium oxide.


Securities Disclosure: I, Chad Fraser, hold no positions in any of the companies mentioned in this article.

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