Analysis: Miner Cliffs woes could douse hopes for Canada's Ring of Fire

Tue Apr 16, 2013 5:43pm EDT
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By Allison Martell

TORONTO (Reuters) - The future of Canada's Ring of Fire, a remote cluster of rich mineral deposits in northwestern Ontario, is looking increasingly dim as the finances of its biggest private investor, Cliffs Natural Resources Inc (CLF.N: Quote), have taken a turn for the worse.

Crouched in swampy lowlands and named for a Johnny Cash song, the 4,000 sq km (1,500 square mile) zone has no rail lines, highways or reliable power. Canadian political leaders say the Ring of Fire could support a century of mining, but the cash-strapped government has yet to commit infrastructure funds.

But other challenges facing Cliffs may prove more difficult. The iron ore and metallurgical coal producer has proposed a $3.3 billion chromite project, including a $600 million highway that could open the region for smaller mining companies such as Noront Resources Ltd (NOT.V: Quote).

The project, Black Thor, would be North America's first major chromite mine, and Cliffs touts the mineral - which is refined into ferrochrome, used to make stainless steel - as a natural next step for a company with long experience supplying the steel industry. But not everyone is enthusiastic.

"They have an infrastructure, logistical problem," said Robert Yuksel Yildirim, president of Turkish industrial conglomerate and ferrochrome producer Yildirim Group, who considered investing in Black Thor.

Yildirim has met with Cliffs several times, but does not plan to buy in. He is concerned about excess supply in the chrome ore market, where China is the primary buyer: "At the market price, I don't think they will be competitive," he said.

Cliffs has been battered by weak iron ore prices, and a key growth project, Bloom Lake iron ore in Quebec, faces higher-than-expected costs. The stock has plunged more than 70 percent over the last 12 months, as soft Chinese demand weighed on companies that supply steelmakers, hitting relatively high-cost iron ore producers like Cliffs.

"For Cliffs, this constitutes an existential threat," said Morningstar analyst Daniel Rohr. "If we head down the road I think we're heading down, there's not going to be a lot of capital in Cliffs' piggy bank to fund something on the scale of this Ring of Fire project."   Continued...

Iceberg marks, some exceeding 20 km in length and 100 m wide, are pictured about 180 km SSE of the proposed Ring of Fire development area, approximately 500 kilometres northeast of Thunder Bay, Ontario in this undated handout photo obtained by Reuters March 28, 2013. Political leaders in Canada are bullish on the Ring of Fire, a chromite deposit in northern Ontario they say could support a century of mining. REUTERS/Ontario Ministry of Northern Development and Mines/Handout