Mining Marshall Plan for Ontario’s Far Northwest (Part 1 of 2) – by Stan Sudol (June 18, 2015)

Infrastructure desperately needed in Aboriginal northwest

There has been much commentary about healing and rapprochement with Canada’s First Nations due to the recent Truth and Reconciliation Commission report on the horrific abuse Aboriginal children experienced at residential schools during the last century.

However, if Ontario, which has the largest population of First Nations people in the country, truly want to make amends for the “sins of the past” than we need to look at “economic and social reconciliation” as our primary vehicle for restitution.

Until every First Nation community in the province has the same level of infrastructure and social services as non-Aboriginal towns and cities, most of the remorseful speeches by guilty white politicians are nothing more than “hot air.”

Without a doubt, some of the most destitute and impoverished First Nations communities are located in Ontario’s mineral-rich but isolated northwest, near the Ring of Fire – the most significant Canadian mineral discovery in almost a century – and in the regions to the west.

Almost a decade of political inaction by both the provincial and federal governments has caused Cliffs Natural Resources – a major American multi-national mining company – to abandon its $3 billion private sector investment in northern Ontario and miss out on the first part of a multi-decade commodity super cycle.

While the international mining sector is experiencing a very significant downturn – past commodity super cycles experienced similar “boom-bust” phases – it will recover as global populations keep increasing and urbanizing and countries like China, India and other developing nations continue to industrialize.

Since the lack of infrastructure was the primary non-political reason Cliffs decided to leave, damaging the province’s global reputation for mining investment, perhaps a new vision is needed to both restore our international standing as well as make amends to Aboriginal communities whose living conditions often resemble impoverished third-world countries.

That bold new vision should be a “Mining Marshall Plan” for the entire far northwest that will allow the region’s First Nations to take advantage of the next round of commodity demands when global economies recover. The term “Marshall Plan” is the name of the American multi-billion dollar investment initiative to help rebuild war devastated European economies after the Second World War.

The “Mining Marshall Plan’s” half-decade long, multi-billion dollar project would provide the necessary transportation and social infrastructure as well as address potable water and other housing, health and education issues, allowing Ontario to finally meet our treaty obligations.

Not only is there a strong moral reason to implement this “Mining Marshall Plan”, there is also a solid business case due to the enormous current and future mineral potential of the region.

World-class multi-billion dollar mineral deposits and potential

First a brief recap is in order. Without a doubt, the Ring of Fire, located approximately 500 kilometers northeast of Thunder Bay, is a world-class mineral discovery which has barely been explored. It is surrounded by five isolated First Nations communities – Webequie, Nibinamik, Neskantaga, Eabametoong and Marten Falls. Four other aboriginal communities that are road accessible – Aroland, Long Lake 58, Ginoogaming and Constance Lake – make up the nine member Matawa Tribal Council who are very slowly negotiating a Framework Agreement with the province.

The Ring of Fire is conservatively estimated by the Ministry of Northern Development and Mines to contain $60 billion worth minerals that include chromite ($50 billion) – the fourth largest reserves in the world after South Africa, Zimbabwe and Kazakhstan – and Noront Resouces’ nickel/copper/PGM deposit ($10 billion) as well as gold, zinc and vanadium. The world-class chromite deposits alone will ensure multi-generational mining activity similar to the trillion-dollar Sudbury Basin.

Well respected James Franklin, the former chief geoscientist at the Geological Survey of Canada from 1993 to 1997, is one of the world’s top experts on the Canadian Shield geology.

Using the legendary and mineral-rich Abitibi greenstone belt between Northeastern Ontario and Northwestern Quebec as a template – the source of roughly 180 million ounces of gold, 35 billion pounds of zinc and 15 billion pounds of copper since the original Timmins gold discovery in 1909 – Mr. Franklin estimates that the $50 billion worth of chromite could easily be doubled while eight smaller VMS-type deposits that contain copper, zinc and silver could ultimately be worth between $30 to $50 billion.

In addition, he feels that an additional $140 billion to $190 billion worth of precious metal alone will eventually be discovered in the many east-west greenstone belts to the west of the Ring of Fire.

One of the most brilliant geoscientists in the country estimates that, in total, Ontario’s far northwest has roughly between $270 and $340 billion worth of precious and base metals. Economically, the exploration and development of those mineral deposits, combined with the infrastructure required to access them could turbo-charge the entire Ontario economy!

In the past decade, former junior mining entrepreneurs Sean Roosen (Osisko Gold) and Gerald Panneton (Detour Gold) established multi-billion dollar companies in formerly “spent” mining camps. How many world-class, company-building mineral deposits are yet to be found in Ontario’s mostly unexplored far northwest that would make up for the “takeover tragedies” of Inco, Falconbridge, Noranda and Alcan?

Furthermore, if the province would establish a working group to start strategically lobbying the global steel producers, perhaps we could also garner the next generation of stainless steel plants to supply the North American market, preferably located somewhere in Northern Ontario – a port community like Thunder Bay or Sault Ste. Marie.

Just a quick aside, Sault Ste. Marie was the location of a chromium smelter between 1935 and 1959. At the time, The Chromium Mining and Smelting Corporation was the first such plant in the entire British Empire and played a key role during the Second World War. With a long history of steel and chromium smelting production, the Sault should be a logical location for any possible future ferrochrome and stainless steel facility.

For this reason alone, CN Rail’s Algoma Central line – that has been threatened with closure over the past few years – should be safeguarded and declared a critically important piece of Northeastern Ontario infrastructure.

The main players and some background context

The two main players are Noront Resources and KWG Resources Inc. This would be an opportune time to explain the mining ecosystem. Both Noront and KWG are junior mining exploration companies that have no cash flow.

They need to go to the capital markets to continue their exploration activities until hopefully they make a significant discovery and usually, but not always, be taken over by a larger mining company. American-based Cliffs Natural Resources, the company that left the Ring, is an established, but currently financially stressed company, with many operating mines and operating cash flow.

For comparison sake – even though Cliffs is no longer involved in the Ring – the current share price of the American miner is $5.36 U.S., Noront is 43 cents and KWG is 1.5 cents.

Noront has a nickel/copper/PGM property called Eagle’s Nest that is NI-43-101 certified, meaning that they have an economically viable deposit enabling them to go to the capital markets for financing to construct a mine once they have all their permits.

KWG has some promising chromite deposits, including 30% control of the Big Daddy deposit, of which Noront owns the remainder. Through their claim staking activities, KWG does control the main north-south transportation corridor into the mining camp critical for a proposed 340 km. railroad to transport chromite out of the camp. Chromite is a bulk commodity like iron ore and cannot be economically moved by road transport.

Cliffs was challenging KWG in court for surface access over those north-south claims to build a proposed road into the region. A string of court verdicts and appeals has yet to settle the issue. However, KWG’s appeal “of the decision of the Divisional Court of the Ontario Superior Court made in July 2014 overturning the decision of the Ontario Mining and Lands Commissioner” which had ruled in favour of the junior against Cliffs’ access request will be heard on October 20, 2015.

In Ontario, mining claims do not include surface rights unless there is a mineral deposit being affected. Why this issue was not settled years ago and has been allowed to “legally fester” could be the subject of its own book!

KWG also owns a unique patent that uses natural gas instead of electricity to smelt chromite into ferrochrome which has the “untested potential” to significantly reduce processing costs. In the recent federal budget, $23 million was allocated “to stimulate the technological innovation needed to separate and develop rare earth elements and chromite.” Plucky little KWG – I nick-named them “chromite mouse” during their court victories over Cliffs – may still pull a rabbit out of the hat with this new technology.

Noront buys Cliffs’s properties

Noront recently bought Cliffs’ Ring of Fire mining assets for a bargain basement price of $27.5 – Cliffs total investment was about $550 million – with a loan from Franco-Nevada, a Canadian royalty company which does not own any mines but invests in properties in return for production royalties.

While Toronto’s financial community cheered this consolidation the Matawa Council, especially Marten Falls and Aroland – were bitterly opposed. The harsh criticism of Noront which has done an exceptional job of community consultation with many CSR initiatives, winning industry accolades, caused great concern that First Nations are not welcoming mineral development.

Nothing could be further from the truth. All Matawa Tribal Council leaders realize that sustainable mineral development will bring decent jobs and prosperity to their communities, similar to other successful Aboriginal partnered resources developments like Vale’s Voisey’s Bay nickel mines in Labrador, Glencore’s Raglan nickel project in northern Quebec, Agnico Eagle’s gold initiative at Baker Lake in Nunavut and Cameco’s uranium mines in northern Saskatchewan, just to name a few examples.

Some of the “politics” behind Marten Falls and Aroland’s opposition to the Noront purchase of Cliff’s properties is that the junior’s top priority is its Eagle’s Nest deposit which only needs a less expensive east-west road that will more positively impact four of the five isolated First Nations communities – Webequie, Nibinamik, Neskantaga, Eabametoong.

A previously proposed north-south railroad would have had a much more beneficial impact on Marten Falls and Aroland First Nations. It’s mainly about getting a larger economic benefit from mining development which no one can deny FNs considering their living conditions.

In subsequent media interviews Noront had suggested that they were open to some sort of new arrangement that could include some form of equity participation.

Any future chromite project, which will have an enormously beneficial and multi-generational economic impact, will most likely need a major rich mining giant like Glencore or Rio Tinto to partner with, or perhaps take over Noront or KWG.

Remember, the region has to overcome the “tainted” economic picture painted by Cliffs CEO Lourenco C. Goncalves who repeatedly stated in public that he did not think that the Ring of Fire chromite deposits would ever be developed in the next 50 years.

I understand the frustration FNs must feel over the slow pace of investment and no movement on desperately needed infrastructure. But in light of Cliffs’ comments, does Matawa Council – especially Aroland and Marten Falls – and their strategic advisors feel that their strident public opposition to the Noront takeover deal be helpful in attracting a new major mining company into a region that many global investors probably now view as politically risky?

And due to the current commodity slump and the low price of chromite, any discussion about a north-south railroad is wildly premature.

So a recent proposal by the Mushkegowuk Tribal Council, which is made up of four James Bay First Nations and three others in northeastern Ontario, to construct an east-west railroad from the Ring of Fire to the James Bay coast over the swampy lowlands is unrealistic. This initiative has garnered enormous media coverage in the northern press.

This plan would be much more expensive than the proposed north-south route from Aroland to the mining camp, which will be built on strategically higher ground atop of sandy/glacial eskers. Now we have two First Nations tribal councils with rival railroad plans which only add another level of confusion to a very complicated project to begin with!

Indispensable chromite

Notwithstanding competing railroad plans, and depressed metal markets, chromium is one of the most vital and indispensable industrial metals for our technology dependent, high standard of living and there is no substitute for its unique metallic properties. It is used for aircraft engines, consumer and health products, auto plating, a variety of stainless steels – giving them their corrosion resistance – and many critical military uses.

While it is not a rare metal, one of the major issues about chromite is the reliability of the top three producers – South Africa, Kazakhstan and India – which account for almost 80% of world supply. Both South Africa and Kazakhstan have political stability issues while India is concerned about security of supply for its own industrialization and urbanization, making the high-quality chromite deposits in Ontario enormously attractive, especially for the U.S. military industrial complex.

The Ring of Fire chromite deposits will eventually be mined but I suspect it might be at least half a decade or longer before there will be any development of substance. If I am wrong, I will be one of the happiest columnists on the planet!

One final comment before I get into the Mining Marshall Plan details. Railroads, roads and grid power lines all benefit both First Nations communities and the entire mining camp. KWG has proposed a slurry pipeline to transport chromite ore instead of a railway due to lower capital costs.

If the slurry pipeline capacity could equal rail line volume and be able to handle expansion from increased future production, than it should be funded as other strategic infrastructure. If it can’t than it should not be subsidized by taxpayers and let the private sector pay for any proposed slurry pipe.

For Part 2 of Mining Marshall Plan for Ontario’s Far Northwest click here: http://bit.ly/1LhW0nB

Stan Sudol is a Toronto-based communications consultant, mining policy analyst and publisher/editor of www.republicofmining.com

He can be reached at [email protected]

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