13th November 2012

Ontario continues to be a global mining leader and expects great things from the ‘Ring of Fire’ – by John Chadwick (International Mining – December 2012)

posted in Canadian/International Media Resource Articles, Ontario Mining, Ontario's Ring of Fire Mineral Discovery |

International Mining is a global technical magazine written for miners by miners. John Chadwick is the publisher. john@im-mining.com 

In November I wrote about one of America’s greatest mining states, Minnesota. This month I and my attention wander across the border to perhaps an even more important region in the global mining industry, Ontario.

In its far north is the Ring of Fire mining camp. At this early stage, Cliffs Natural Resources is looking at an operation there to treat 4.4 Mt/y of crude ore, expected to produce up to 2.3 Mt/y of chromite concentrate. Noront Resources is more into nickel-copper-PGMs – 1 Mt/y throughput producing approximately 150,000 t/y of high grade nickel-copper concentrate containing significant platinum and palladium.

KWG Resources, one of the first players in the area, has earned a 30% interest in the Big Daddy chromite deposit, which, at a 15% cutoff, has a Measured resource of 29.5 Mt, grading 29% Cr2O3. The Indicated resource is 7.9 Mt grading 26.7% Cr2O3, and there are 4.8 Mt Inferred, grading 25.0% Cr2O3. By comparison, Outokumpu’s Kemi mine in Finland has ore reserves of 41.1 Mt averaging 24.5% Cr2O3. The much higher grades of the Big Daddy compare favourably with those deposits whose ore is shipped directly to foundries with minimal processing. This potential is being investigated.

Ontario has 42 operating mines today and is the largest producer of non-fuel minerals in Canada (21% of the nation’s total non-fuel production, worth over C$10.7billion in 2011). The Province is the leader in mineral exploration spending accounting for 26% of Canada’s total last year. Last year saw the biggest exploration spend ever, C$1,022 million, of which some 75% was spent looking for gold. The 2012 figure is likely to be just under the C$1 billion mark.

However, capital investment in mining was C$3.5 billion in 2011 and this is expected to continue to increase, totalling some C$3.8 billion by the end of this year. At least eight new mines will be in production by 2017, of which three, all gold mines, opened this year. These were Lake Shore Gold’s Bell Creek (which is covered in detail in the Operations Focus of this issue), Wesdome Gold Mines’ Mishi mine and AuRico Gold‘s Young-Davidson mine.

Early next year Detour Gold, with more than 15.6 Moz in reserves and excellent growth potential, will put Detour Lake into production and it should become one of Canada’s largest operating gold mines. In addition, some 45 advance stage mineral projects have completed mineral resource estimates. Indeed, there are more than 600 active mineral exploration projects underway in Ontario

There are also many mine expansions underway including, for example, Goldcorp embarking on significant gold expansion projects at its Red Lake, Timmins and Musselwhite operations which will see production capacity almost double. Mining companies are expected to invest over C$6 billion in the next three to four years in expanding and upgrading existing gold, nickel and diamond operations in the province, and in excess of C$4 billion to develop operations in the Ring of Fire area.

Some may be unaware of the stature of Ontario and Toronto in North America, but Toronto is the fifth largest city on the continent, (after Mexico City, New York, Los Angeles and Chicago). The Toronto Stock Exchange (TSX) is the third largest in North America by value traded, and the most important in the world for mining finance, with in excess of 1,600 mining companies listed. The mining market capitalisation of the TSX in 2011 was $427 billion and that year $12.5 billion of new mining equity capital was raised.

About 45% of Canada’s suppliers of mining goods and services are located in Ontario – more than 500 companies. In northern Ontario, this sector employs 23,000 people and generates revenue of about C$5.6 billion per year.

The Ring of Fire exploration play is the current focus of excitement. According to the Ontario Government, “The Ring of Fire is one of the most promising mineral development opportunities in Ontario in almost a century. Located in Ontario’s Far North, current estimates suggest the multi-generational potential of chromite production, as well as significant production of nickel, copper and platinum.”

The Ontario Government attaches such importance to this; the newest of Ontario’s mining camps, that it has its two of its own Assistant Deputy Minister, Dr Christine Kaszycki and Deborah Richardson. They will be very involved over the coming years with fostering understanding between First Nation groups and the mining companies active in the region, and the provision of infrastructure, which will be a massive task.

Taking the Cliffs’ Black Thor project, for example, the deposit is extremely remote. The “base case” mine site is 350 km north of the town of Nakina in the Municipality of Greenstone and the nearest transport infrastructure. Nakina has the CN transcontinental rail line and the TransCanada Highway (Ontario Highway 11).

Thunder Bay is the closest major city to the Ring of Fire, approximately two hours by air to the southwest. The nearest industrial facilities are the Victor diamond mine 150 km to the east and the Musselwhite gold mine 300 km to the west.
The Province is in early stage discussions with Cliffs regarding a north-south all-season road to connect the Ring of Fire to existing provincial infrastructure.

The Province intends to contribute financially to develop the proposed all-season road subject to various environmental, regulatory and financial approvals. “The current expectation is that the all-season road would be made available for use by industrial users other than Cliffs, with access fees generally based on proportional road usage, although specific terms are still to be determined.”

Cliffs has publically stated that the cost of its proposed integrated transportation system is budgeted at C$600 million. Its Black Thor is the other advanced project. In May the company began to work on a program of prefeasibility through to the feasibility study phase. Cliffs stated that its discussions with the Government of Ontario “have resulted in an agreement in principle for key elements of its chromite project, including development of provincial infrastructure.”

The company has chosen Capreol, a few kilometres north of Sudbury, as the future location for its intended ferrochrome processing facility. “This facility will be designed to process the chromite ore mined and concentrated in the region.

Sudbury was selected due to various economic and technical factors that would best support the viability and success of the overall project, including transport logistics, labour, long mining tradition, community support and access to electrical power.”

Bill Boor, Senior VP – Global Ferroalloys for Cliffs said: “Assuming it goes ahead; our project has sufficient scale to justify infrastructure investments with the potential to connect remote communities with more populous municipalities, opening up the Ring of Fire to other responsible mining investments.”

The Ring of Fire (the name apparently comes from the Johnny Cash song and has no geological derivation) was delineated less than ten years ago. KWG Resources has been a pioneer in exploring the James Bay lowlands since 1993 and discovered diamond bearing kimberlite pipes near Attawapiskat and five more near the Ring of Fire area in 1994. This led to the accidental discovery of the McFaulds Lake copper-zinc volcanogenic massive sulphide deposits in 2002, the discovery which precipitated a staking rush that defined the Ring of Fire.

KWG owns 100% of Canada Chrome Corp which has staked claims and conducted a C$15 million surveying and soil testing program for the engineering and construction of a railroad to the Ring of Fire from Exton, Ontario where the Trans Canada line of the CN railway can be connected.

The most advanced project today is that of Noront Resources, which in September announced the results of an updated NI 43-101 feasibility study for a standalone nickel, copper, PGM mine and mill complex on its 100% owned Eagle’s Nest deposit, McFaulds Lake, James Bay Lowlands, Ontario. The results of the study, completed under the supervision of Micon International, confirm that Eagle’s Nest offers robust economics.

A Discounted Cash Flow (DCF) based on the assumed metal prices indicates:

• An after tax NPV at an 8% discount rate of C$543 million
• An after tax IRR exceeding 28%
• An estimated initial capital investment of $609 million
• Estimated life of mine sustaining capital cost of $160 million
• Estimated operating costs (including road access fees) of C$97/t or C$2.34/lb of nickel equivalent or -C$0.31/lb of nickel net byproduct credits
• An estimated mine life of 11 years
• A capital payback period of less than three years based on a 100% equity project.

Wes Hanson, CEO of Noront states: “The decision of the Province of Ontario to financially support the north-south road corridor pending certain approvals is a very positive development in unlocking the mineral wealth of the Ring of Fire. Our discussions with the Province have confirmed that the all-season road will be accessible to all industrial users including Cliffs and that the costs to use the road will be based on proportional usage, a critical consideration for Noront as our concentrate shipments represent less than 7% of the currently identified ore haulage along the corridor.

“We are currently focused on site work in advance of project development as we evaluate opportunities to finance project construction. Analysts are predicting a nickel price rally in 2015 and 2016 as demand outstrips supply. This timing matches the planned start of production at Eagle’s Nest. With nickel production costs in the lowest quartile of existing and planned nickel producers and limited capital costs, Eagle’s Nest remains one of the most exciting opportunities in the nickel sector today.”

Currently, 23 companies hold claims and activities in the Ring of Fire area, with spending to date totalling in excess of C$278 million.

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