5th January 2013

Accent: Ring of Fire – Miles to go before we dig [Part 1 of 2] – by Stan Sudol (Sudbury Star – January 5, 2013)

posted in Aboriginal and Inuit Mining, Chromium/Platinum Group Metals, Glencore-Xstrata PLC, Ontario Mining, Ontario's Ring of Fire Mineral Discovery, Stan Sudol Columns/Media References and Appearances |

The Sudbury Star is the City of Greater Sudbury’s daily newspaper.

It may be a cliche, but over the past six months, how things have changed and how they’ve stayed the same in the Ring of Fire.

There may be some ongoing activity or discussions behind the scenes, but without a doubt, the declining state of the global economy, First Nations issues and Ontario politics seem to have halted any progress on a variety of issues.

First let’s look at the fragile nature of the world economy. The U.S. is still struggling; Europe is worse, with skyrocketing unemployment rates in many countries; and China’s past double-digit expansion is gone. It is estimated that their economy will “only” grow 7% this year.

The price of commodities and the value of resource companies have plummeted. Many mining projects are being put on hold or cancelled, while layoff notices are being handed out. Funding for junior exploration companies — the source of future discoveries like the Ring of Fire — has become almost impossible to find, putting many on life support.

The stock price of Cliffs Natural Resources has plummeted from US$100 per share a year and a half ago to a little under US$30 recently.

Cliffs has publicly stated that they are looking for a partner to help develop their Northern Ontario chromite deposits. Recently, the company has put their Bloom Lake iron ore expansion project in Quebec’s Labrador Iron Trough on hold and stopped production at two of their U.S. iron ore mines.

There is also rampant speculation that Cliffs — which only operates in politically stable countries like the U.S., Canada and Australia — is a prime takeover target.

Recently, the Glencore-Xstrata merger has been given the green light by shareholders and European regulators. Xstrata is the world’s largest producer of chromite from their extensive operations in South Africa. That country supplies almost half the global demand of this vital ingredient for stainless steel and many other strategic uses, including critical military applications.

Last summer, the labour strife and the violent deaths of many miners in South Africa — the Marikana Massacre is where 34 workers were killed on August 16 — started in the rich platinum-mining region of the Bushveld and had spread to many other mines throughout the country. The Bushveld is also the source of South African chromite production and many other minerals.

The country has one of the widest gaps between the very rich and poor. While the violence and strikes have subsided, there is still much tension in the mines and many fear that if their standard of living does not significantly improve, the political stability of the entire country may be at risk. And the more militant youth wing of the ruling ANC party continually calls for the nationalization of some parts of the mining sector.

With the strategic value of chromite, South African political uncertainly and the very low value of Cliffs’ stock, is Glencore/Xstrata thinking about swallowing the cash-strapped U.S. miner? They are certainly big enough, as the merger has made Glencore/Xstrata the fourth largest international miner after BHP-Billiton, Vale and Rio Tinto. Or would one of the other major miners want to take over Cliffs and establish themselves in the chromite game, becoming the new ‘King of the Ring’ as well as acquiring that company’s valuable iron ore and coal deposits. Many people feel that Cliffs will not be the company digging chromite out of the ground in 2016, their revised timeline for mining production to start.

Considering the strength of the financial downturn, First Nations political and social issues, on top of the environmental and transportation challenges , one wonders if Cliffs’ management is dreaming in technicolour if they think they will meet that new starting date.

I am betting on 2019 or 2020. And a warning to Sudbury politicians to not count your chromite eggs just yet: If Cliffs is taken over, the new company will surely reassess all previous decisions and that ferrochrome facility might end up elsewhere. Stay tuned, as it will be a very interesting 2013.

THE COMMODITY SUPERCYLE IS OVER?

Of course, with all this economic uncertainty, the financial bears are coming out of the woods. Many newspaper headlines are screaming that “the commodity supercycle is over.” Don’t believe it for a minute. From the end of the Second World War and the early 1970s, we went through a previous commodity supercyle as we rebuilt Europe, the U.S. and Canada boomed and Japan, South Korea and other smaller Asian tigers industrialized. However, the demand for commodities did not go up in a straight line.

That was painfully evident here in Sudbury, where we experienced the traditional boom and bust cycles of the mining sector. The old Inco would lay off 2,000 workers and a year or two later, rehire them.

For the rest of this column, please go to the Sudbury Star website:

http://www.thesudburystar.com/2013/01/05/accent–ring-of-fire—miles-to-go-before-we-dig

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