Ring of Fire debacle shows why big mineral discoveries can be worth so little – by Peter Koven (National Post – December 27, 2013)

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The headline from Queen’s Park was loud and clear: Thousands of jobs coming to Northern Ontario, the provincial government announced in a breathless press release back in May of 2012.

The statement went on to explain that U.S. miner Cliffs Natural Resources Inc. will spend US$3.3-billion to develop a chromite mine and related infrastructure in the Ring of Fire, a vast mineral discovery in the remote James Bay Lowlands. This investment would lead to a “new generation of prosperity” in the North, the government claimed.

“When you read it, it sounded like the mine was about to open,” said Progressive Conservative MPP Norm Miller, the party’s mining critic. Of course, it wasn’t exactly right. What Cliffs actually said is that the Chromite project was moving on to the feasibility study phase, and the company had preliminary agreements with the government on certain aspects of it.

The rest of the story is well known. Talks with the province stalled after Dalton McGuinty resigned as premier. Chromite prices dropped. Cliffs lost a key infrastructure ruling from Ontario’s mining and land commissioner. And five weeks ago, the company suspended all work on the project.

As a result, development of the Ring of Fire feels almost as distant today as it did when it was discovered six years ago.

When politicians from Ottawa and Queen’s Park discuss the Ring of Fire, they often point out that it could hold $60-billion of minerals. But the debacle with Cliffs points to an equally important truth: that without a credible infrastructure plan, billions of dollars of capital, and firm agreements with government and local stakeholders, remote deposits like the Ring of Fire are worth approximately Zero. In that scenario, the Ring of Fire is not a mining centre; it’s just a swamp.

While many Ring of Fire stakeholders would disagree with that assessment, the market certainly supports it. Cliffs, along with the numerous junior miners in the Ring, are getting virtually no value from investors for these projects, as there is no confidence they will get developed anytime soon. In Cliffs’ case, analysts were mostly relieved when the project was put on ice.

A couple of years ago, Ring of Fire deposits were being valued at hundreds of millions of dollars by over-eager investors. They were captivated by the fabulous drilling results, and not focusing enough on the logistical challenges and the underlying economics of the projects. Today, one could argue that the opposite is true: investors are completely focused on the challenges and scarcely thinking about the value of the resources.

For the rest of this article, click here: http://business.financialpost.com/2013/12/27/ring-of-fire-minerals/


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