[Ring of Fire] Chromite discovery sparks excitement – by Norm Tollinsky (June, 2009)

Norm Tollinsky is editor of Sudbury Mining Solutions Journal, a magazine that showcases the mining expertise of North Bay, Timmins and Sudbury. This article is from the June, 2009 issue.

For an extensive list of articles on this mineral discovery, please go to: Ontario’s Ring of Fire Mineral Discovery

“This greenstone belt, this Ring of Fire crescent, is about the same land area of the Abitibi
Greenstone Belt, which includes Timmins, Kirkland Lake, Noranda and Val d’Or. It comprises a substantial part of the mining wealth of Canada, and we have a sister to it.”
(Frank Smeenk, President, KWG Resources – June, 2009)

A massive chromite deposit in the James Bay Lowlands will extend the development frontier of Ontario from Timmins to the Attawapiskat River and result in billions of dollars of spending on new mines, processing facilities and infrastructure, according to senior executives of several junior mining companies.

The deposit, touted as one of the largest discoveries of chromite in the world and the only one in North America, has already attracted the attention of one major mining company and others may follow.

Cliffs Natural Resources, the largest producer of iron ore pellets in North America, a major supplier of direct-shipping lump and fines iron ore out of Australia and a significant producer of metallurgical coal, has invested U.S. $3.5 million in a private placement for 19.9 per cent of KWG Resources Inc., one of five junior mining companies with property along the 12 to 14-kilometre strike length of the deposit.

KWG president Frank Smeenk has already had discussions with Ontario Northland about a rail line from the mine site to Nakina and foresees a $500 million ferrochrome foundry, or smelter, being built in Thunder Bay.

“This is going to be huge,” said Smeenk. “Putting a rail line in to develop the chrome deposit is one thing, but this greenstone belt, this Ring of Fire crescent, is about the same land area of the Abitibi Greenstone Belt, which includes Timmins, Kirkland Lake, Noranda and Val d’Or. It comprises a substantial part of the mining wealth of Canada, and we have a sister to it.”

Interest in the area dates back to the ’90s, when Spider Resources Inc. and KWG teamed up to search for diamonds in the James Bay Lowlands. In 1997-1998, the two companies optioned a number of targets to De Beers, recalled Smeenk.

“They drilled what they thought was a very handsome looking, potentially diamondiferous Kimberlite target and made a discovery of copper and zinc. That was the beginning of the Ring of Fire story.

Greenstone belt

“It had always been theorized that there was mineralized greenstone in that part of the province because of surveys that were flown by the Canadian Geological Survey in 1957.”

The swampy conditions and the lack of outcrops made traditional prospecting almost impossible, so the De Beers drillhole “was an important step forward” and “demonstrated that this crescent-shaped area was mineral-bearing geology as had been posited,” said Smeenk.

The copper-zinc discovery in 2001 created little more than a ripple of interest due to the remote location, but Spider and KWG staked some ground, as did several other juniors, whose principals knew each other or shared offices. Among them were Freewest Resources Canada Inc., MacDonald Mines Exploration Ltd. and Noront Resources Ltd.

All five companies raised some money and did some work. As the trail got warmer, Spider and KWG optioned a block of claims from Freewest, agreeing to spend $3 million on exploration in return for a 50 per cent interest in the property.

“In 2006, we drilled some holes on the Freewest option and discovered chromite, which was quite intriguing,” said Smeenk. “We were more interested in the platinum and palladium potential, but as we subsequently discovered, we were into what was the very early stages of one of the world’s largest chromite deposits.”

The seven-metre intersection of chromite was interesting, but hardly spectacular, and quickly overshadowed by Noront Resources’ discovery nearby of its massive nickel sulphide Eagle One deposit in August 2007. Boasting a NI 43-101 resource estimate of approximately 500,000 tonnes grading in excess of 6.5 per cent nickel, plus copper and PGEs, Eagle One captured the imagination of investors and brought another dozen companies into the area – not surprising given the price of nickel, which was then more than $20 per pound.

However, as drilling by Freewest, Noront and Spider/KWG continued through 2008, it was chromite that stole the show. Together, the results indicate an ultramafic intrusion extending approximately 14 kilometres from Noront Resources’ property in the southwest across the Spider-KWG-Freewest option and onto the 100 per cent-owned Freewest claims.

Big Daddy

Spider/KWG drilling on its Big Daddy chromite deposit included one intersection grading 42 per cent chromic oxide over 35 metres. On its 100 per cent-owned Big Thor project, Freewest intersected 40.4 per cent chromic oxide over 43.6 metres, while Noront intersected similar grades on its Blackbird chromite deposit, two kilometres south of its Eagle One massive sulphide deposit. The chromite orebody also crosses the property owned by Fancamp Exploration Ltd., which has yet to do any drilling.

The deposit lies close to surface, and extends 300 to 400 metres deep and 100 metres wide.

Chromite is converted into ferrochrome in an electric arc furnace and used in the production of stainless steel. North American steelmakers rely primarily on South African imports, but chromite is also mined in Kazakhstan, Turkey, India and Brazil.

“The South African chromite is in narrow seams of two to three metres thick that go for miles and miles and miles, whereas we’re getting high-grade chromite up to 100 metres thick,” said Freewest president Mac Watson.

Copper-zinc discovery

Freewest staked its claims in the Ring of Fire in 2003, following the initial copper-zinc discovery by De Beers. The base metal find didn’t get much attention at the time because of the remote location, as it wouldn’t by itself justify the massive investment in infrastructure necessary to access the site.

“You need something that will last for years to justify the infrastructure up there and it looks like the chromite is going to derive that,” said Watson.

Joe Hamilton, interim co-CEO of Noront, predicts both will be necessary to justify the cost of accessing the site and bringing in power.

But the jury is still out on the feasibility of mining the chromite, he warns.

“The global market for chromite is less than 12 million tonnes per year, so even if you have 100 million tonnes of material – and we’re still a long way from determining that – the question is ‘What production rate do you need to support the infrastructure?’ The next question is ‘Will the production rate be so large that you kill the market?’

“If a production rate of five million tonnes per year is required to get an appropriate return and repay the capital, that’s unrealistic, given the size of the global market, so there’s still a lot of work to do.”

Economic study

A preliminary economic study commissioned by Noront indicated that Eagle One would “just barely” be able to repay the capital at current, depressed nickel prices.

“What that tells me is that we need to find more nickel sulphides to expand that resource because, if the belt is going to be developed, it’s going to be a combination of nickel and chromium. I don’t think, quite honestly, that the chromium is going to be a stand-alone. I don’t think the global market is going to be able to support the required production rates without cratering the chromite price.”

One industry observer who has been following the Ring of Fire discoveries predicts a race is shaping up to be the first to develop the chromite resource. Whoever moves first to secure a major mining company and the necessary funding will capture the North American market of between two and four million tonnes per year.

KWG’s success in bringing Cliffs onboard appears to provide KWG, Spider and Freewest with a head start, but it’s still too early to pick a winner.

“In my opinion, Cliff’s position in KWG is somewhat meaningless because KWG owns a maximum of 25 per cent of a very small piece of the chromite strike,” said Noront’s Hamilton. “It’s a toehold for them. It’s a way for them to start looking at the chromite discoveries, but they haven’t taken an interest in Freewest or Noront and at least 90 per cent of the strike length is on Noront and Freewest ground.”

Hamilton wouldn’t say if Noront has been in discussions with Cliffs, but Watson of Freewest readily admits he’s had discussions with the company.

“It’s only natural that someone would want the whole thing,” observed Watson. “KWG has 25 per cent of the joint venture. We have 50 per cent of it, and we have 100 per cent of our own property, so it looks like Freewest is going to end up with most of the chromite in the area.”

Watson speculated that Brazilian mining giant Vale might also be interested.

“We know that Cliffs is out there. They’ve made a financial commitment to KWG, so they’re interested, but there may be others who will come knocking on the door.”

The impact of the currrent recession on the stainless steel industry and the collapse of the ferrochrome market is another wild card. According to a February reort by Metal Bulletin Research, “demand remains almost non-existent, production levels remain shockingly low and stockpiles remain worryingly high.”

However, the relevancy of current market conditions is questionable given the fact that it will take years to get the regulatory and environmental approvals, build a road or rail link to the site, bring in electricity and construct the necessary production facilities, including a gravity concentrator at the site and a ferrochrome foundry, or smelter, adjacent to port facilities in Thunder Bay or elsewhere on Lake Superior. It’s anyone’s guess what market conditions will be two to four years from now.

Yet another wild card is the variability of chromite prices. “There’s no where you can go to get the spot price for chromite because the material differs depending on the (source of the ore),” said Hamilton. “There’s lump ore, fines … there are eight to 10 different chromite products and none of them are on the spot market. They’re all priced through supply agreements directly with metal brokers or steel mills.”

Ring of Fire chromite grades as high as 39 per cent chromic oxide, widths are impressive and the chromium to iron ratio is close to 2:1 – all of which is indicative of a high-quality resource.

The current state of the chromite market is a concern, admits Watson, but “it would make a lot of sense for steel companies in North America to have a local source of ferrochrome.”

Share prices for Freewest, Spider and KWG have yet to reflect the potential upside because of the current state of equity markets.

The financial meltdown has taken all the attention away from this “great discovery,” complained Smeenk. “But it will change. Very few people know about this. The story’s not out yet and Bay Street isn’t aware of it.”

Watson concurs. “Nobody knows about chromite. If it was nickel, copper platinum, palladium or gold, it would be different, but ‘what do you do with chromite?’ people ask me. I guess it’s known in the exploration community, but it’s not really known in the investment community.”

KWG/Spider, Freewest and Noront plan to continue drilling.

“We have a rough idea of the strike length from both the drilling we’ve done and the geophysics, so now we’re just filling in,” said Watson.

“I’ve had a couple of base hits, but this looks like a home run,” he added. “It’s huge and it’s going to be great for the North and for the First Nations. If this goes ahead, there will be jobs for the next 50 years.

And it won’t end with the development of the chromite belt and Noront’s Eagle One massive nickel sulphide deposit, predicts Hamilton. Infrastructure to support these projects will open up the entire Ring of Fire area and enhance the economies of other deposits waiting to be discovered.

The Ring of Fire could be just as big as the Abitibi Greenstone Belts, including Timmins, Kirkland Lake, Noranda and Val d’Or, said Smeenk. “It’s that order of magnitude.”

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