KWG lays out new vision for Ring of Fire – by Norm Tollinsky (Sudbury Mining Solutions Journal – December 1, 2014)

This article was originally published in the December 2014 issue of Sudbury Mining Solutions Journal.

Proposal includes a slurry pipeline, a gas reduction reactor in Nakina, and a stainless steel mill in Sorel

What’s the ideal development scenario for the Ring of Fire? Not what most of the protagonists in the long drawn out saga have proposed to date, according to Frank Smeenk, president and CEO of KWG Resources.

Forget about Cliffs Natural Resources and the $1.8 billion electrically-powered ferrochrome smelter in Sudbury. Ditto for the billion dollar plus railroad from the CN line to the chromite fields of the Ring of Fire, as proposed by Smeenk himself.

The KWG president’s latest grand scheme for the Ring of Fire hinges on a new gasfired production method for chromite, a slurry pipeline bringing the ore south to a gas reduction reactor in Nakina and a second parallel pipeline bringing natural gas north to two gas-fired electrical generating stations.

Also proposed are a single underground shaft to access both Noront Resources’ Eagle’s Nest base metal project and the adjacent Black Horse chromite property, an east-west “forestry road” to Pickle Lake, an extension of the Ontario Northland Railway (ONR) from Hearst to Nakina, and a stainless steel production facility in Sorel, 80 kilometres northeast of Montreal on the St. Lawrence River.

The stainless steel pellets available for export to the global market will have baked into them every advantage Canada has, including low-cost hydro-electric power in Quebec, plentiful supplies of natural gas, iron, nickel, the highest grade, best chemistry chrome, and lowcost transportation via the ONR and the St. Lawrence Seaway, according to Smeenk.

Gas-fired reduction

The new patent-pending gas-fired direct reduction process at the core of Smeenk’s grand scheme removes one of the main stumbling blocks – the high cost of electricity in Ontario – that hung like a black cloud over earlier proposals.

“The new production process happened in the context our assessment that there had to be substantial further processing in Ontario for this project to get social licence and that process could not realistically or politically include the plan that (Rick) Bartolucci (former Minister of Northern Development and Mines) and Cliffs cooked up, which was to give a multinational corporation a break on electricity rates when you and I and our mothers are paying through the nose,” said Smeenk. “We were looking for an option that didn’t include consuminga lot of expensive Ontario electricity.”

Gas process

The path to the development of the gas-fired direct reduction process began with Cliffs engaging Glencore’s XPS Consulting and Testwork Services, formerly Xstrata Process Support in Sudbury, to do metallurgical testing of ore from its wholly-owned Black Thor chromite property.

Smeenk tagged along as Cliffs’ 30 per cent partner on the nearby Big Daddy property, but made his own arrangements with XPS for testing the Big Daddy ore when KWG and Cliffs had a falling out.

Hanging out at XPS and rubbing shoulders with metallurgists led to an introduction to Frank Winter, a consulting metallurgist from Pittsburgh who used to run Atlas Steel in Welland, Ontario.

“Frank was a wonderful source of eye opening insight and information,” said Smeenk. “He lived through the advent of direct reduction and the move away from using blast furnaces for making cast iron.”

The direct reduction process relies on the carbon component of the carbon monoxide in natural gas combining with the oxygen in the iron oxide. The reaction takes place in a column reactor.

“The ore goes in the top and comes out the bottom as reduced iron, which is then used as a feedstock for the mini mills that from the 1960s onward started making steel better, cheaper, faster and to much higher specs,” said Smeenk.

“Winter said, ‘you should be able to use a similar reaction to take the oxygen out of the chrome, not necessarily with just the carbon in the gas, but by adding some carbon.’”

KWG hired XPS to test Winter’s thesis and, along the way, various catalysts were experimented with to lower the temperature at which the reaction occurs to 1100 degrees Celsius – down from 1700 to 1900 degrees Celsius.

A patent application is underway and a deal is in the works for KWG ownership of the intellectual property. “This is a scientific breakthrough,” said Smeenk. “It’s historic. It’s very consequential.”

Replacing the originally proposed ferrochrome smelter in Sudbury would be a gas reduction reactor in Nakina, 280 kilometres south of the chromite deposit “where North America’s almost limitless supplies of natural gas are available via the Trans Canada Pipeline.”

Smeenk has been the leading proponent of a railway to the Ring of Fire, but is now proposing another solution for transporting the ore out of the waterlogged lowlands.

Slurry pipeline

“It’s become quite clear that it’s going to take much longer than I have left in terms of time to get to where there’s going to be a railroad built to bring the chrome out, so we’re looking at a slurry pipeline option,” he said.

The idea is to grind the ore into a powder at the minesite, mix it with water so it’s as liquid as possible and pump it to Nakina through a buried pipeline that will cost one-third of the investment required to build a railway.

“We could get up to four million tonnes of material a year through a pipeline, which is about 50 per cent more than what Cliffs was proposing to get out (as part of its plan for hauling the ore out by truck on an all-season road from the Ring of Fire to the CN Rail line),” said Smeenk.

The plan is to remove the water from the slurry in Nakina and take out the oxygen using the direct reduction process, leaving a premium, low carbon ferrochrome compound that’s two parts chrome and one part iron.

“Once we figured out that the ore pipeline would work, we asked the pipeline engineers to look at how much more complicated and how much more it would cost to lay a second pipeline for natural gas going north, and it turns out it’s a very attractive option.”

The gas would be used to fuel two electric generating stations: one at the minesite for grinding the ore and other electricity needs, the other near Marten Falls to provide power for pumping the ore through the slurry pipeline.

Smeenk’s grand scheme then zeros in on the novel concept of a single shaft to mine nickel, copper and PGM from Noront Resources’ proposed Eagle’s Nest mine, as well as the chromite from the adjacent Black Horse deposit, on which KWG has an option to earn up to 80 per cent of any chromium production.

“Our idea is that Noront is very unlikely to be able to finance a 12-year nickel deposit at a capital cost of $600 million to $700 million,” said Smeenk. “It is virtually unfinancable for that amount of money for that period of time. There’s nobody who will give you 15-year money backed by nickel. That’s our thesis. Maybe $200 million, $300 million or $400 million, but $700 million is a stretch, and we find their proposal exotic what with underground caverns and mills, and putting the tailings underground. It’s textbook beautiful mining, but it’s costly and a bit pie in the sky, so we said, look, we know enough about this chromite now to say with some authority that we’re going to be mining it for 100 years and beyond, and that it ultimately has to come from underground, so why not bite the bullet and go underground right from the start.

“If you do that, you get Black Horse, which has the highest grade chromite and the biggest thicknesses, but because of where it’s located at the south end of the intrusion and a little bit north and east of Eagle’s Nest, you can pay a toll for use of the same shaft, which would be a fraction of the price of amortizing $700 million.

“Noront could use the shaft to do 3,000 tonnes per day and we can do 17,000 tonnes per day for the first 12 to 15 years and 20,0000 to 30,0000 tonnes per day thereafter,” said Smeenk.

The chromite orebody on the Black Horse property starts at 800 feet below surface, unlike the other properties along the intrusion which are closer to surface and amenable to open pit mining. A 115 kilometre extension of the ONR line from Hearst to Nakina along the decommissioned but still serviceable Pagwa subdivision railbed would provide an economically sustainable transportation solution for hauling the ferrochrome to North Bay and on to Sorel, where KWG envisions a casting plant to produce stainless steel.

The ferrochrome would be mixed with Canadian nickel and liquid iron, which is available as a byproduct of Sorel’s Quebec Iron and Titanium refinery, to produce austenitic stainless steel.

“The castings will have very substantial quality and cost advantages with which to earn a share of the global market … and provide the necessary long-term economic sustainability needed to justify the development of the Ring of Fire,” said Smeenk.

Very little will happen, however, without finding some way of bringing heavy equipment to the minesite to begin construction. There are two competing proposals to accomplish this.

Noront, which has been leading the charge for a east-west corridor from the Ring of Fire to Pickle Lake, is now backing a winter road from Marten Falls, while KWG is proposing an east-west “forestry road” from Pickle Lake to the Ring of Fire that will somehow link five remote First Nation communities.

The two east-west roads aren’t one and the same.

“Noront designed a road and did an environmental assessment on a road that doesn’t connect to anybody, and it’s a fabric road that goes through wetland,” said Smeenk. “We went to the forestry guys and the First Nations and asked them where do you want a road and where can you build one. Our route is about one-third of the price and goes where the First Nations think it should go and where the forestry guys say they can build it.”

As for who will own all of the assets – the forestry road, the rail line to Hearst, the pipelines, the generating stations, possibly even the proposed common shaft – Smeenk proposes a semi-government agency, a development corporation, or a port authority “that can borrow 50-year money at 3 per cent.”

Securing the support of the First Nations in the area is a critical requirement for any development of the Ring of Fire, but an overall plan that links the remote communities to transportation infrastructure and replaces diesel generation with electricity from the two proposed generating stations responds to some of their most pressing needs.

Ideas and proposals are one thing. Cold, hard cash, further testing and feasibility studies, environmental assessments and a development corporation that can bring all the parties together to hammer out a plan are something else.

Grand schemes don’t become realities overnight.

As for Cliffs Natural Resources, look for a fire sale, no pun intended. As Smeenk notes, “It’s pretty hard to find people to give you money to buy things that a blue chip mining company is walking away from, but I will be there first with an offer. Lourenco (Gonclaves, Cliffs chairman, president and CEO) and I have had conversations. I’m still plugging away at the financing piece.

It’s not without its complications, but if anybody’s gonna buy it, it will be KWG.”

Cliffs’ shares have been on a steady decline since July 15, 2001, falling from $98 to $8.94 on Oct. 20th. KWG shares on the TSX Venture exchange traded at 4.5 cents October 20th, down from 9.5 cents July 15th.