Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
A Canadian region once touted as Ontario’s answer to the oil sands will not be developed anytime soon- according to the CEO of a major stakeholder.
Lourenco Goncalves, head of U.S.-based Cliffs Natural Resources (NYSE:CLF), made the comment during an interview with the Financial Post last week.
“I don’t believe under my watch, and I plan to stay [alive] for the next 50 years… that the Ring of Fire will be developed,” the 55-year-old told the newspaper.
The 4,000-square-kilometre Ring of Fire, located 540 km northeast of Thunder Bay, is home to an estimated $60 billion worth of mineral deposits, and lawmakers say it could bring prosperity to northern Ontario much like the oil sands industry have to northern Alberta. But the region lacks highways, rail lines or reliable power.
Last year Cliffs had to suspend most work on its $3.3 billion Black Thor chromite deposit, citing stalled talks with the province and other political and regulatory problems. The miner had also struggled to win over aboriginal communities. The stoppage came despite Cliffs spending some $500 million building its land position in the region.
Goncalves doesn’t hold much hope of finding a buyer for its asset, either. While several junior mining companies exploring in the Ring of Fire, including KWG Resources (TSXV:KWG) and Noront Resources (TSXV:NOT), have expressed interest in purchasing Black Thor, “They do not have any money,” the FP quoted him as saying. “The Ring of Fire is a remote land with no railroad, no road, nothing,” he added. “Without the infrastructure, there’s nothing we can do.”
The negative comments came as a shock to the Ontario government, which said in April it is ready to allocate up to CAD$1 billion to develop an all-season transportation corridor to the Ring of Fire and it is asking the federal government to match the funds.
“The comments from the CEO of Cliffs were somewhat startling,” Minister of Northern Development and Mines Michael Gravelle told CBC News on Friday. Gravelle countered by saying that 20 other mining companies have interests in the Ring of Fire and that many in the mining industry disagree with Goncalves.
12 Comments
abantug
Too many stakeholders.IRR will be very very low.
miket
Just a ploy, to gauge the level of potential investor interest – and to spur the governments into action (bait on the hook) !
Wanderlust
The Cliffs CEO is telling it like it is! The lame duck Liberal government does not have the billion to put into this region, and the ploy to ask the Feds to match the amount means that they will spend federal money while taking all the credit. The nerve of these Liberals, spending all of the taxpayers money on windmills and gas fired powerplants, while lobbying the aboriginal groups to go against the mining companies. They should not not be so startled with the candid and honest assessment from Mr. Goncalves since they are the authors of this scenario.
Realism
I agree with Wanderlust. Cliffs are the only guys with $$ and operating mines. The others are all talk-don’t believe all you read in the news.
the other Bob
Too close to the Kitchenuhmaykoosib Inninuwug First Nation. Look what happened to Gods Lake Resources and Platinex before them. Goncalves realizes that neither Ontario nor Canada have effective sovereignty over that area.
patentbs
So prove him wrong! There is a lot of investment required and a lot of reward to go around. But start with the locals and the Ont government. Then drag in the feds after there is an appropriate level of interest and commitment.
RULE # 1 to impress the north – do not waste another billion relocating facilities so a southern Ontarian will have a better view.
Kenneth Viney
Take a clue from the Nations vs Rio Tinto. That demonstrates the theory that if you appoint a Liberal Judge to the bench you will receive a warm fuzzy liberal decision from the bench. I predict that in 20 years or so the Native Canadian demands will be so great no new mine will be developed in Canada. 10% of the Canadian legal profession depends on these Litigations so they can make millions off the poor Canadian Tax Payer. Wake up Canada.
Fred Brown
KWG’s plan is to reduce the unprocessed chromite ore using a southern ‘natural gas super reducer (GSR)’ in place of the combination of a northern ROF mine site $800M “electric concentrator” and a southern electric powered ferrochome smelter.
The fundamental issue has always been the supply and delivery of chromium concentrate, ferro-chrome, and nickel at the best long term competitive world price while obtaining social license through provision of needed infrastructure to
mine and local communities respecting conservation environmental models.
Cliffs backed out because even after Ontario gave it power subsidies, money for it’s private all-season mine toll road, exemptions to ship 50% of the concentrate to Asia, it’s business model was not competitive.
Canadians and Ontarians should not be forced to pay for a large part of the private mine ‘road, rail or pipeline’ infrastructure, subsidize corporate electrical power rates and see a large part of semi-processed natural resources leave Canada.
‘You have to keep your costs low with any project, let alone a project on this scale.’, KWG Resources Ltd.’s vice president Maurice Lavigne said in Sudbury, Ontario, on April 3rd, 2014. ‘A railroad drives down your cost, the gas drives down your costs’ Lavigne told reporters after speaking to a noon crowd at a luncheon held by the Greater Sudbury Chamber of Commerce.
“We’re going to make this project economically robust and we owe that to society.”
Lavigne said KWG doesn’t want to build a fragile industry that “shuts down one year and opens the next year and creates chaos in the communities.
“You’ve seen that, you know that movie, we don’t want to do that,” he said.
LAMB
The latest news from CLIFFS was they are in deep trouble financially.
From what I hear and read, CLIFFS does NOT have the money and needs a way out in order to appease shareholders.
Look what the NY Market analysis says on October 27, 2014:
“Cliffs Natural Resources Inc. swung to a loss in the third quarter, dragged down by a $6 billion write-down related largely to its purchase of a Canadian iron ore mine as well as lower iron ore and metallurgical coal prices.”
“The Cleveland-based iron ore and coal miner–the largest iron-ore miner in the U.S., that in April was removed from the S&P 500–has said it intends to sell its less profitable mining operations and focus on its Minnesota and Michigan mines, which supply iron ore to booming automotive-focused steel mills.”
NOW DO YOU UNDERSTAND WHY THE Cliffs CEO IS POOH-POOHING THE RING OF FIRE? He does NOT have the money NOR the ability to raise it.
Expect the CHINESE to step in and buy out CLIFFS Black Thor property if Noront & KWG cannot.
In discussion with the ‘Ontario Ring of Fire Secretariat’ last Thursday (October 30, 2014), there are options to the infrastructure, like a 285 km winter road, a Rail link, etc. which the Ontario Government is prepared to spend. 1 $billion can build a lot of road & rail links. Expect the smaller companies to start production via winter roads & diesel-powered electric generators – and NOT in 50 years time like CLIFFS would have you believe.
It’s like the spoiled brat that says “FINE, IF I CANNOT PLAY HERE, I WILL TAKE MY TOYS AND GO HOME. in this case, CLIFFS CANNOT AFFORD TO “PLAY”.
Adolf Galland
Bottom line is that this deposit does not justify sufficient financial returns to justify the massive capital costs required to compete with south african and kazakh existing mines. Mines have been built in remote, undeveloped areas many times before in many parts of the World – but not for chromite or ferrochrome…..
Zulugroove
I’ve been through that area, a road /rail link would cost a Fourtune . Bogs,swamps , lakes rivers look at the topography ..it’s not as if your laying track in the prairies ! As per usual I would say underestimated by the normal govt 200% Environmental impact?..who knows but what the hell, it will provide work for a few years.
Itabirite
The current Ontario Government (other than perhaps Gravelle) couldn’t care less about NW Ontario and is scared witless about dealing with the First Nations. There aren’t enough votes outside of the GTA, they have the greenies in the bag, and the coffers are empty – there is no billion $. KWG’s process is just a pipe dream right now, potential but nowhere near commercial. The government and environmentalists will stall this to death.