U.S.-based Cliffs Natural Resources Inc. is set to sell its Ring of Fire assets to a small Canadian company for a fraction of the cost, a bitter end to the American miner's foray into Northern Ontario.
Noront Resources Ltd. will pay $20-million (U.S.) cash for Cliffs' chromite deposits, less than four per cent of the $550-million Cliffs paid to acquire and develop the properties.
The deal will give Noront control over the major discoveries in the Ring of Fire, a large crescent of chromite and other minerals in Northern Ontario that the government suggested had an economic value of as much as $60-billion during the commodity boom.
But the modest amount paid for the deposits reflects the long odds that the Ring of Fire will be developed in the near future, given the mining industry's deep slump. Some observers say it may never be economical to mine the chromite, a mineral used in making steel. And plans for required road and rail development are moving at snails' pace.
"It will certainly take a lot of time and money to complete the necessary infrastructure. At current commodity levels the incentive for corporations to take on these type of large-scale, capital-intensive projects is quite low," said Shane Nagle, mining analyst at National Bank Financial.
The Ring, located 500 km north of Thunder Bay, is inaccessible by road and has no infrastructure. Noront is waiting for permits for its Eagle's Nest nickel project in the area. It is unknown whether the Cliffs-Noront deal will speed up development in the Ring or give the First Nations groups in the area a way in and out of their isolated communities.
With Noront on the verge of owning most of the deposits in the Ring, the company will play a bigger role in determining the route to the area.
Noront has always advocated an east-west road, which would allow the company to move nickel ore out of its Eagle's Nest project. The company has said it cannot mine the metal economically without a government-funded road. Cliffs had pushed for a north-south road to haul the large chunks of chromite rocks out of Northern Ontario.
"For the time being, the east-west road makes a lot of sense," said Noront's chief executive Alan Coutts. "It's social, it's environmental and it's operational. It can support two or three mines like Eagle's Nest and maybe the first chromite deposit," he said.
The federal and Ontario governments had promoted Cliffs when the Cleveland-based iron ore company was pouring money into the province. But now the winds are shifting in Noront's favour. Both levels of governments recently agreed to pay for a study to examine the viability of an east-west road.
To finance the transaction, Noront is borrowing $22.5-million from Franco Nevada Corp. In exchange, Noront will pay a 7-per-cent interest rate over the seven-year period of the loan as well as provide Franco with royalties on some of its properties.
Norton shares jumped 36 per cent on the news, closing at 49 cents (Canadian) on the TSX Venture exchange.
The deal is subject to bankruptcy court approval as Cliffs' Quebec iron mining operations are undergoing restructuring. It includes the acquisition of Cliffs' Black Thor and Black Label chromite deposits, as well as a 70-per-cent interest in the Big Daddy chromite deposit and an 85-per-cent stake in the McFauld's Lake copper zinc deposit.
Cliffs suspended the project in 2013 after numerous delays and difficult discussions with the province and the First Nations communities. Ironically, Cliffs had outbid Noront for the chromite assets in 2009. Cliffs is also trying to get rid of its iron ore operations in Quebec and recently shut its Labrador iron ore mine.
The deal is expected to close mid-April.